Universal Currency

When I decided to respond to the blog about Universal Currency, I was responding to Gustav's bllog about currency. However, I went back and read Unique's blog and decided to pull some of her points, which I agreed with as opposed to Gustav's points. I do not agree with most of the points of Gustav's blog on Universal Currency. He states that a universal currency is not a good idea and would have a negative impact. He states in his blog that we are a barbaric society that should revert back to our ancestry's way of dealing with currency, and even if we wanted to change, we don't have someone powerful enough.

Yes, the world can be barbaric at times. For example, we have seen a lot of war, piracy, cruelty, invisible children fighting in Uganda, people ignoring other's rights, etc. But if we let that stop us from thinking we can make advancements, we wouldn't have gotten anywhere. For example, we wouldn't have made it past the crusades, the dark ages, or either of the World Wars, just to name a few. Sometimes after the crisis and during the clean-up is when most technological advances are made. For example, the industrial revolution occurred after the Civil War and Reconstruction. Sometimes, the barbaric actions can be a way out of crisis and lead to improvement: World War II got the United States out of the Great Depression because more jobs were available making weapons and preparing for war. -Wars and improvement in the US Also, the NY Times article Gustav sites is from 1858, which is outdated to even know about the improvements to come. The article does not know how much the world has changed.

On the topic of change, this year we elected a new president, President Barack Obama. His platform is bringing about change. He is the first African-American President, which came about even before the first woman president. He is knowledgeable of other cultures, so he relates to the rest of the world well. People think that he could improve relations with other countries, since they can see first-hand how the United States is becoming more diversified and open to change. Many leaders of other countries are willing to cooperate with Obama for these reasons; therefore, to me he could be the leader to implement this universal currency. -Obama and Change

A universal currency would be great to cut transaction costs and eliminate exchange rate risks when companies go international. -Favorable Factors of Universal Currency As we have discussed in many of our cases, such as Aspen Technology, when these companies try to expand their sales to other countries, they expose themselves to currency risk. They become long in some currencies and short in others. If they sell some software to China and don't collect all the money upfront, when the customer is paying incremental payments in Yen, over time, the exchange rate may change. The exchange rate change could mean a loss of money for the company. With all the risks that companies have to worry about hedging, it would be nice if their was one risk that could be eliminated for them and for all of international business. -Exchange Rate Risk

For these above reasons, a universal currency is possible and could be beneficial. However, I do have to agree with the point in Unique's blog that this creates universal interest rates and a universal bank, which could cause problems. As Unique states, no two countries are ever in the same economic state, which could hurt one or the other. Also, a universal bank gives a lot of power to a few people, which is scary. Using Europe as an example for adopting the Euro, I think that we need to weigh the benefits and costs of a universal currency. It seems to be working well for Europe. -Euro Success We will see what happens.