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Advantages and disadvantages of a single world currency

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A possible international monetary regime consists of a world central bank conducting monetary policy and issuing a single currency used throughout the world. What would the advantages and disadvantages of such a system be?

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The advantages and disadvantages of such a scheme are similar to those of "dollarization" which some Latin American countries have used. They accept dollars as if they were domestic currency in order to stabilize their prices. The primary disadvantage for them is loss of control over their money supply. This renders monetary policy worthless. If the country needs to encourage or discourage economic growth, it has lost its most effective tool.

In the same way in a global scenario, the most powerful countries economically speaking would control monetary policy. They would be ...

Solution Summary

Advantages and disadvantages of a single world currency; exchange rate manipulation and seigniorage revenue discussion

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Currency & trade agreement question

1. Discuss the advantages and disadvantages of having one world currency.

2.There are several trade agreements around the world which involve many countries. In North America, for example, there is the North American Free Trade Agreement (NAFTA). These trade agreements spell out the rules for trade amongst the nations which abide by the treaty.

Some advocates of NAFTA are in favor of expanding the agreement to include all nations in North and South America (although it is not clear if Cuba would be included).

Discuss the benefits and costs of such a sweeping trade agreement. Consider the various countries involved (you do not have to look at all of them!) and what it means for first and third world nations to join in such an agreement.

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