Wednesday, April 8, 2009

The Group of 20 gave a nod to the idea of a single world currency last week, and other countries such as China are pushing it because they no longer trust the United States to restrain itself from printing too much cash and debasing the dollar. While we share China’s concerns about the danger of Washington over-printing money, there are numerous reasons to avoid a global currency.

Any currency, including a single world currency, can be debased. But more importantly, if too many dollars are being pumped out, people can start holding other currencies such as the Euro. If businesses and people don’t trust the government issuing a particular currency, they can write contracts in whatever they want. With a single world currency, there is nowhere else to go. As a general rule, competition is good - and money is no exception.

Even more competition in currency would be beneficial. During the double-digit inflation of the late 1970s, American Express tried unsuccessfully to be allowed to pay interest on its Travelers Cheques. The Federal Reserve blocked the move because it feared that people would want to hold Travelers Cheques instead of dollars. As usual, government monopolies fear competition.

Treasury Secretary Timothy F. Geithner and Austan Goolsbee, member of the Council of Economic Advisers, have refused to rule out a global currency. Such views by top policymakers cause the dollar to drop. Even worse, this shows that the Obama administration supports dramatically greater centralization on a national and international scale.

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