There are those within the crypto community that hope to one day have a global currency, all on the blockchain, that will free us all from the clutches of governments and banks. While I do think that the future of currency is and ought to be crypto, I don’t see that particular scenario ever panning out. Besides the fact that governments will probably never let such a thing happen, it’s simply impractical, economically unsafe, and unwise to all be on a single currency.
I get my unease from the post-recession Euro crisis that’s been plaguing Europe since the end of 2009. Europe’s misfortune teaches us something, in my mind, of extreme import: the value of a currency can have a profound impact on a country’s financial health. Governments know this, and a country in control of its own currency can manipulate the supply of the same to complement current economic conditions. (See, as an added example, China’s monetary response to Trump’s tariffs.)
The basic principle is this: when the economy does poorly, a government tends to print more money, making their currency cheaper in comparison to the currencies in neighboring countries. This encourages foreign investment, tourism, and stokes the exports market. Under more favorable economic conditions, it can be better to decrease the supply to keep prices down and give members of the economy more purchasing power.
A country may also want to manipulate the supply of its currency because of the makeup of its economy. An economy that favors exporting will perform better with a weaker currency, while a country that needs to import more would benefit from a stronger currency. As exemplified in Europe, the UK has traditionally had a strong currency and imports most of its goods; in contrast, Germany exports a great deal and thus prefers a weaker currency.
The Euro crisis has been fascinating because we can see how the economies of a loose confederation respond to all being on one currency, and thus to being unable to have full control of their own monetary policy. Greece, for example, has been suffering immensely under crushing debt. In 2016, their national debt was a whopping 180.8 percent of their national GDP, almost double that of the average in Europe; the year before, unemployment was at a staggering 25%.
Greece’s woes come from a few different sources, like their particular sensitivity to interest rate changes, but had they their own currency, it would be useful to weaken it substantially to recover. They cannot, however, because their fiscal policy is tied to the rest of Europe, and many of these European states would not benefit so much from a weak currency. So, Greece has an artificially strong currency, which does it ill.
In contrast, because of member states like Italy, Greece, and Spain, Germany has an artificially weak currency considering their booming, stable, and strong economy. This is good for them because they act within Europe as a “producer,” ranking second in the world only to China in net exports. Having a weak currency makes their products competitive on the world market.
The problem is further compounded by the fact that, while European states operate under the same fiscal policy, they do not distribute aid from more wealthy countries to the poorer ones. Each country redistributes wealth internally through taxes, but does not distribute aid to other nations on the Euro. Were the United States to operate in a similar manner, that would be like wealthy states such as California or Massachusetts not contributing to poorer economies like Arkansas, Mississippi, or Puerto Rico. That they do is an important contributor to the United States’ financial health.
Thus the European Union locks these member states into a relationship sufficiently strong to disable individual countries from implementing customized monetary policy, but insufficiently strong to unite their economies. In contrast, the United States works well because the states are bound together under a single, powerful government that regulates monetary policy for the whole country, and that distributes aide from wealthy states to poorer states.
Because countries in the world do not operate under a single government and have vastly different economies with different needs, it is self-evidently impossible to run each of these economies on a single, global currency.
The only way I see it working is if a global currency has a value independent of fiat currencies and an appropriate exchange rate between local, governmental currencies, and the crypto. This would allow each economy the room to make adjustments as needed. Alternatively, each economy, or government, can establish their own cryptocurrency as a national currency. Of course, this somewhat defeats the purpose of blockchain technology because it involves, yet again, the government.
It would be interesting to see some innovation on this front to produce a highly intelligent, high-quality system that could respond to economic pressures in each country or economic region. With better tech and theoretical advances in computer science and economics, we may be able to establish some sort of global currency. However, with what we’ve got now, we cannot possibly expect to make a single, global currency out of crypto.
Contributed article by Derek Sorensen, Pyrofex Research Mathematician