Currency is the money that is in use in a nation. US dollars, Chinese renminbi, Korean won and Brazilian real are currency. It is the prerogative of a sovereign nation to issue currency. A national currency can promote national self-determination. A national currency allows a nation to pursue its own economic policies, even though the options are limited by market forces.
It is the prerogative of a sovereign government to issue a currency and to determine which the legal means of payment are. It seems better not to have a single global currency as it would erode local and regional economic self-determination. Local or regional currencies can supplement national currencies, most notably when communities or regions are closely integrated or have specific economic needs.
International Currency Unit
An International Currency Unit can facilitate international trade. Currently a number of national currencies are used to this aim, most notably the US dollar. This arrangement can give nations an economic advantage but it also makes national central banks responsible for foreign banks. The US dollar is the most important international reserve currency. It allowed the United States to enjoy a higher living standard paid for by foreign nations. It also made the FED responsible for the international banking system so that the FED had to rescue foreign banks during the financial crisis of 2008.
The International Currency Unit can be a weighed average of several national currencies, but it would require an international central bank to guarantee stability in the international banking system. As long as central banks make political decisions, an international central bank would be a troublesome construct. Only when central banks do not set interest rates and do not print money, it might become feasible to introduce an international central bank. This might become possible when the International Currency Unit is a Natural Money currency that carries a negative interest rate.
The euro has been a daring experiment because the nations of the euro zone are sovereign but have given up their national currencies. This produced political and economic tensions. Countries in Northern Europe feel they pay for the debts of Southern Europe while countries in Southern Europe feel they are faced with austerity dictated by Northern Europe. The way out appears to be making the eurozone a federation like the United States or going back to national currencies.
Returning to national currencies doesn’t have to end of the euro. National currencies can be introduced alongside the euro or the euro can become a weighted average of the national currencies making up the euro zone. Existing balances in euro will then remain in euro. In the latter case the future euro would look like the proposed International Currency Unit. This could be a step towards introducing an international currency and an international central bank.
The future of cryptocurrencies is unclear. Cryptocurrencies promise an alternative international payment system independent from governments and banks as well as an alternative way to issue stock. Proponents of private currencies believe that private currencies like cryptocurrencies can supplement or even replace existing currencies issued by governments and central banks.
Currency is an important aspect of political self-determination and governments have the prerogative to issue currencies. Private currencies can undermine the power of governments. Cryptocurrencies facilitate crime, scams and tax evasion so they their use is likely to become regulated or even banned. Governments may also start to issue cryptocurrencies themselves.
Many cryptocurrencies are in limited supply so the few that become dominant can become a store of value or a means of speculation. Cryptocurrencies without a holding tax don’t allow for negative interest rates while negative interest rates may be needed to ensure a stable economy without crises. For that reason cryptocurrencies are not suitable as a means of payment.