Economists have dreamed for decades of a global currency. John Maynard Keynes proposed a supranational currency to be called bancor, former Federal Reserve Chairman Paul Volcker claimed a “a global economy requires a global currency,” and Robert Mundell, the chief architect of the euro, suggested a global currency called the intor “would lead to an enormous increase in the gains from trade and real incomes of all countries.” In The End of Money, David Wolman compares the idea of a global currency to the “universal language” of Esperanto.
“Supporters of Esperanto believe it could someday reduce miscommunication and, by extension, promote world peace. Backers of a single Earth currency envision a great smoothing of transactions, an end to damaging currency speculation, and less economic turmoil, which could mean greater prosperity for all.”—The End of Money, David Wolman
Other economists have been less sanguine about the prospects of a global currency monopoly. Most famously, Nobel Laureate Friedrich Hayek called for increased currency competition, and imagined a proliferation of private currencies competing with the national government currencies — an idea that was considered improbable at the time, but recently has become a reality. In The Future of Money, Benjamin J. Cohen (an economic consultant to OpenCoin Inc.) argues that despite the clear benefits of a global currency — a larger transaction network, reduced transaction costs, etc.– market forces will resist the domination of a single currency. It is not in the best interests of governments to cede control of their national monies, and it is not in the best interests of individuals to submit to a global monetary monopoly. Indeed, even if a global currency were to arise, market forces would cause rival currencies to be invented.
“BUT WHY should we not let people choose freely what money they want to use? By ‘people’ I mean the individuals who ought to have the right to decide whether they want to buy or sell for francs, pounds, dollars, D-marks, or ounces of gold. I have no objection to governments issuing money, but I believe their claim to a monopoly…to be wholly harmful….This, and not a utopian European Monetary Unit, seems to me now both the practicable and the desirable arrangement to aim at.”—Friedrich Hayek, “Choice in Currency,” 1976
It would seem that the global currency enthusiasts and the currency competition advocates are in direct opposition. However, this is not necessarily the case. While the two camps disagree about their proposed solutions — single currency vs. currency marketplace — there is no inherent conflict in their goals. The global currency camp does not advocate monopoly for its own sake, they merely believe it necessary to create a superior money. The currency competition camp does not champion transactional inefficiency, they merely feel it is an unfortunate side-effect of resisting monopoly. The underlying conflict is technical not ideological. As with so many other historical problems, this currency conundrum seemed intractable until technology caught up with the theory.
Hayek hoped that one day technology would arise to make a multiple-currency model more efficient: “Electronic calculators, which in seconds would give the equivalent of any price in any currency at the current rate, would soon be used everywhere.”
Here at Ripple, we believe we’ve done a bit better. Ripple’s distributed exchange is the “electronic calculator” that Hayek dreamed of, but on a scale he could never have imagined. Ripple users have complete currency choice — they can hold, trade, send and receive payments in any currency they want. Fast, free, automatic, and independent of any institution, the Ripple currency exchange allows for the smooth global transactions craved by Mundell and the global currency marketplace imagined by Hayek. It is a currency solution that meets the demands of both the global currency and currency competition camps.
Getting all the people of the world to speak a common language is a nice idea, but it’s logistically impossible, and, as collateral damage, would eradicate all the languages of the world. A better solution is a universal translator, which achieves global communication without losing the virtues of French, Mandarin, Arabic, etc. Similarly, a global currency is a nice idea, but would be a political nightmare to implement, and would destroy the specific, intrinsic values of individual currencies — the anti-inflationary quality of Bitcoin, the powerful state support of the US dollar, the local focus of LETS, the ancient trust quality of gold.
A better solution is Ripple — the world’s first universal translator for money. Now every currency has the smooth transactional qualities of a global currency, everyone can “choose freely what money they want to use,” and it’s all available for free on the largest transaction network ever created, the Internet.