There have been several suggestions by China, Brazil, Russia and other countries, and by a U.N. Commission headed by Nobel Laureate Joseph Stiglitz, as well as by the United Nations Conference on Trade and Development for a new global reserve currency to replace the U.S. dollar. Increasingly, the media are running stories and comments about the “demise of the dollar.”
Recently, I asked the president of the Single Global Currency Association, Morrison Bonpasse, about his take on the future of the U.S. dollar and the global monetary system. In previous interviews, we’ve explored the idea of a single global currency.
Here’s what Bonpasse had to say about the recent events and the calls to move the world’s monetary system away from the U.S. dollar.
Theodore F. di Stefano: Why must the current role of the U.S. dollar be changed?
As the Chinese Central Bank Governor, Zhou Xiaochuan, stated last spring when proposing a new global reserve currency, it no longer makes sense for the currency of one nation to have such a primary role as the U.S. dollar.
This statement echoes former Federal Reserve Chair Paul Volcker’s wise refrain, “A global economy requires a global currency.” The U.S. dollar is one of many symbols of U.S. power after World War II and after the end of the Cold War, but we are now in an increasingly multipolar collegial world. For a global currency to be trusted and valued, it must be for today, even for this hour, and not for the past.
di Stefano: What should replace the U.S. dollar?
Very simply, a single global currency, managed by a Global Central Bank within a Global Monetary Union, should succeed the dollar. Such a currency should incorporate the U.S. dollar and not just push it aside, as the dollar did to the UK pound in the 20th century. The model for the dollar’s future incorporation into a monetary union was the role of the Deutschmark in the formation of the European Monetary Union.
We do not need yet another global currency, whether reserve or not. What we need is a global monetary system which will provide monetary stability, and that stability cannot be achieved in a multicurrency system. By definition, in a multicurrency system there are unpredictable currency fluctuations and risky global imbalances.
di Stefano: What should be the role of the International Monetary Fund?
The IMF was established by the 1944 Bretton Woods Conference to cope with, or ameliorate, two fundamental problems which bedeviled the multicurrency world: currency fluctuations and global imbalances. The elegance of a single global currency is that it will solve both problems.
To repeat, the establishment of a single global currency will eliminate currency fluctuations and will eliminate the problem of global imbalances. What the IMF should do is to initiate research and planning for such a single global currency, and then plan a role for itself in the new system as part of the Global Central Bank.
di Stefano: What should be the role of the G20?
At the recent Pittsburgh conference, the problem of global imbalances was recognized by the G20 countries as one of three major concerns. The fear is that if the U.S. government continues to run its gigantic deficits, the world’s confidence in soundness of the U.S. will decline, and when confidence in a government declines, the value of its currency declines. That’s why the future single global currency should be managed by a representative Global Central Bank, just as the euro is managed by the European Central Bank.
The primary goal of the Global Central Bank would be the same as for the ECB: monetary stability. If the IMF is not going to lead in the research and planning for a single global currency, the G20 should do so. Three of the G20 countries — France, Germany and Italy — are already in a monetary union, and there are zero currency fluctuations among them and zero currency imbalances.
Another G20 member is the European Union. The U.K. and Turkey will eventually join the euro, and other G20 countries are likely to be the cores of future regional monetary unions, such as Argentina and Brazil, Japan and China, and South Africa.
Finally, the regional monetary unions will join with each other and with one or more of the national currencies. Once the tipping point is reached where one currency supports approximately 40 to 50 percent of the world’s GDP, the movement will accelerate to anoint that currency as the single global currency.
di Stefano: How long might this process take?
The goal of the Single Global Currency Association is a single global currency, managed by a Global Central Bank within a Global Monetary Union by 2024, which is now 15 years away.
However, the process needn’t take that long. If the decision makers in the U.S. and EMU decided to merge the dollar and the euro into a monetary union, that could be accomplished in less than five years, and that merged currency, whatever its name, would become the single global currency. Other potential mergers could also be executed rapidly. The expansion of the EMU is once again gathering momentum, after many EU members, and Iceland, too, understood that belonging to a large monetary union can protect a country against currency collapse.
di Stefano: What’s the next step?
The claimed benefits of a single global currency deserve serious study. Is it true that the adoption of a single global currency will save (US)$400 billion annually in foreign exchange transaction costs and will eliminate currency fluctuations and will eliminate global imbalances and the need for foreign exchange reserves? Once these claims are proven valid, then the leaders of the world’s monetary systems will need to agree on the goal of a single global currency, just as the leaders of Europe agreed in the 1980s on the goal of a common currency in Europe.
When the goal is openly acknowledged and its benefits widely understood by the people of the world, they will demand its implementation. Hopefully, we will achieve this goal without another global financial crisis to focus our attention.
di Stefano: Thank you, Morrison, for sharing your beliefs with us. Good luck!
Theodore F. di Stefano is a founder and managing partner at Capital Source Partners, which provides a wide range of investment banking services to the small and medium-sized business. He is also a frequent speaker to business groups on financial and corporate governance matters. He can be contacted at Ted@capitalsourcepartners.com.