Thoughts about a hypothetical scenario (shifting currency/monetary systems)

Please indulge me for a second. I'd like to hear your thoughts on this.

Just suppose that the world banks and powers that be decided to shift from a national to a global monetary/currency system (or even a regional one based on trading blocks). How exactly does one go about phasing out a currency and monetary system?

I'm not suggesting this is what will happen so I don't want responses that address its potential so much as what the implications are of the process of such a change. Perhaps it's a plausible enough scenario to warrant a little discussion.

And even if it were probable, I know we could only speculate about just what the process would be, so there aren't any right or wrong answers with this hypothetical. However if anyone has any knowledge about how currency shifts have occurred historically on a smaller scale and how it impacted the nations who experienced it, I for one would be very interested to hear about it (for instance the Euro and how it has affected those nations who moved out of their currencies).

Just food for thought. :think:

They set a date when the currencies would be locked together, set an arbitrary value of what a Euro would be with fixed exchange rates to the national currencies, mandated that price signs would have the values of stuff in national currencies and Euros for several years, and then finally printed Euros and did a change over that lasted just a few weeks. It certainly helped them that the Euro was close to the value of a dollar at introduction and had pretty easy conversions with many (but not all) national currencies.

If things in North America were ever to go that way, I think they'd try something different and push FX markets to lock in an "easy" conversion of USD 1.0 = CAD 1.0 = MXN 10.0. Although that would require the Peso to gain about 10% more value, or the US and Canadian dollars to lose about 10% of their values.

A friend whose family lives in Greece told me that their economy took a dive and still has not recovered. Do you know what the story is there?

And any thoughts about how a possible global or regional shift relative to the dollar might pan out for our U.S. economy?

I know that in the three year period of fixed exchange rates, but no Euro cash, the Euro lost a lot of value, but since 2002, the Euro has almost doubled its value against the US dollar and is about EUR 1.0 ~ USD 1.5.

Euro transition was "logistically" very easy and went extraordinarily well. The problems reside with the economic problems, which I could describe as 1) rounding up of prices and inflationary pressures and 2) one size fit-all central banking policies:

- the transition was an amazing feat. Of course plenty of "training" was implemented prior to the actual shift. Businesses were mandated to start showing prices in Euros in their invoices a year prior to shifting (and had to show prices in the old currencies for a few years after, at least for the totals of invoices). Everything went smoothly. ATMs were filled up with € the days before the shift, with part of the network out of comission over a rolling schedule for the 2-3days after the shift. And that was that. There were plenty of small problems that had to be resolved (ie businesses had to update software so as to be able to show fractions up to ,00, whereas in our old currency the escudo, this simply never happened).

- problems are: a lot of cheap items underwent a huge inflationary pressure, which ended adding up to a fairly big increase in prices averaged. For instance, here (in Portugal) an expresso coffee which cost an average of 0.25-0.30€ before the shift (50 escudos in old currency went to 0,50€ (over the course of about two years). A lot of new prices were weird-looking (for instance, 0.56€ for a subway ticket) and were immediately rounded up (to 0.60, for instance) etc.... A lot of people complain that many things that are important for the poorer people had radical increases in price.

- also, if a particular country is going through some difficult economic policies, it no longer has the option of devaluating its currency. In Portugal, it is estimated that if we could devalue our currency by 5-8% it would have a huge (benefic) impact on overal economy. Of course, we can't since these policies are set by the Central Bank of Europe which looks at overall average prices, issues and so on. Same for interest rates, which are set by the Central Bank and forbid individual countries "fiddling" with them to promote specific economic policies.

Brasil also went through a bunch of currency changes. Generally, the logistics of it are easily implemented but the medium to long term effects can have unpredictable consequences.

Has this been discussed here at DU?