This is an opinion editorial by Nesrine Aissani, cofounder of the Zonebitcoin blog.
I was born in the ‘80s in an African country that had a so-called “non-convertible” currency. I think that forever marked my way of thinking about “currency” and I felt that was an injustice. This also became more and more evident when I discovered Bitcoin and when I used it as a medium of exchange.
Here, I will try to explain what I mean.
A non-convertible currency is one that one cannot exchange that currency on the international foreign exchange market. Outside the country, this currency has no value — it may also be referred to as locked money. For example, the Indian rupee is a semi-non convertible currency outside of India while dollars can be exchanged in all countries around the world.
It may sound crazy, but most countries in the world have a non-convertible currency. In 2022, only 18 countries (or regions) have a convertible currency. As you can see, not many do.
Beyond the macro-economic dimension, the non-convertibility of currencies has concrete repercussions on people’s lives. Tourism, for example, becomes a complex business due to the need to exchange its currency (and incur the exchange fees and conversion rates).
Why Do Some Countries Opt For Non-Convertible Currencies?
If governments decide to opt for a non-convertible currency, it is mainly to prevent capital flight abroad. In effect, by preventing convertibility, residents are then “forced” to use the currency in the country. Although the currency cannot leave the territory, it is nevertheless possible via complex financial instruments such as non-deliverable forwards (NDFs).
Thus, in theory, it may seem appropriate for a country to prefer non-convertibility. However, there are some drawbacks to this process which some countries seem to be tied up against.
When a currency is not convertible, it limits trade with other countries. This adds administrative and financial complexities to these partners. Also, when you have a non-convertible currency, the demand for it is relatively low (unless you have a comparative advantage on exports or it’s a sought-after tourist destination). This weak demand inevitably translates into a depreciation of the currency.
Naturally, the countries that benefit the most from international trade are those that have convertible currencies. With each transaction, demand increases and strengthens its legitimacy.
Therefore, it is clearly necessary — even essential — and all the more so in the era of globalization to have a currency that everyone can use and refer to.
Since the Bretton Woods agreement of 1944, it has been agreed that the U.S. dollar will be the reference currency in international trade. This is called “exorbitant privilege” as it gives great advantages to the United States.
Bitcoin Is Already Used As An International Currency
Nowadays, people all over the world are sending bitcoin to each other as a means of payment. Many freelancers and remote workers are now paid in bitcoin. Migrants that send money to their families back home are another example of its usage.
This is especially true in countries with the most unbanked populations. Bitcoin brings financial infrastructure to entire populations, as is the case in India, Africa and Latin America.
All it takes is a phone and an internet connection to send money to someone on the other side of the world. In this regard, bitcoin is already used as a universal currency. Some might say it’s just as easy to send dollars. One only has to have lived in countries with non-convertible currencies to know the extreme difficulty of opening a dollarized bank account.
The Idea Of A Single World Currency.
Since then, the idea of a single currency or a return to the gold standard has been put back on the table. It’s not a new idea, actually.
During the Bretton Woods agreement, John Mayard Keynes proposed the creation of an international currency called the bancor, fixed by a basket of strong currencies of industrialized countries. His proposal was not accepted but his idea has continued across generations of economists.
For example, in 1969, the IMF (International Monetary Fund) set up special drawing rights (SDRs). The value of an SDR is based on a basket of major currencies. However, the SDR is not a currency in the classic sense but serves as an international reserve asset.
However, this “international currency” is hardly known by the world population. It is only used by international organizations. What about the rest of the population? What about companies?
What Would Be The Benefits Of A World Currency?
If there were no more national currencies, foreign exchange market-based problems and conversion fees would end immediately. Countries would no longer have a monetary barrier and could trade more freely. This would improve and increase international trade. All nations would benefit, especially countries with fragile currencies because there would be no more exchange risk.
Economic data indicates that the change over to the euro for the European Union has a positive impact on trade, increasing bilateral exports by ~5.5%.
In addition, the global rules of finance would be leveled and all countries would be on equal footing. For example, China has undervalued its currency for years to make its export prices more competitive with other countries. This manipulation of its currency would be obsolete with the use of a single global currency.
Countries with a weak currency could benefit from a stable currency. It would certainly help the economic development of many countries.
If Bitcoin is used as an international currency, most developing countries could see a positive impact on their economies.
Countries as geographically distant as El Salvador and Morocco for example could do business. On a local scale, new businesses and startups could exist in countries that are currently cut off from the rest of the world.
In some ways, using bitcoin as an international currency would immediately align the countries of the world in terms of financial equity. Access to the economy would be the same for everyone.
Why Some Oppose A Single Global Currency.
It is true that on paper, the advantages seem obvious. Still, some economists have said it would not be a desirable situation. For Robert Mundell, Nobel laureate, “the optimal currency area is not the world,” because cohesion between all countries would be complicated if not impossible.
In the wake of Mundell’s argument, a single international currency would make it impossible to practice different monetary policies. Since countries are different from an economic point of view, this could benefit and destabilize other countries.
However, if stuck there, which approach shall we take?
Bitcoin As The Currency Of The World?
Saifedean Anemous has advocated the idea of a Bitcoin standard.
He explains in his book “The Bitcoin Standard” that bitcoin could bring the same advantages as gold in the history of world trade. Bitcoin would have all the attributes of “sound money,” and in this way it would provide the new basis for a functioning economy that would avoid recessions and debts.
We can only agree that the current global monetary system is not fair or equitable. This system creates more losers than winners.
The worst part is that it doesn’t seem to be getting better. On the contrary, it seems that we have arrived at the end of our rope. You can’t print money forever.
Would it be so inconceivable for humanity to finally have a single global currency that is not controlled by anyone, but belongs to everyone at the same time?
This is a guest post by Nesrine Aissani. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.