An alternative definition of a world or global currency refers to a hypothetical single global currency, as the proposed Terra or the Dey (acronym for Dollar Euro Yen) , produced and supported by a central bank which is used for all transactions around the world, regardless of the nationality of the entities (individuals, corporations, governments, or other organisations) involved in the transaction. No such official currency currently exists.
There are many different variations of the idea, including a possibility that it would be administered by a global central bank or that it would be on the gold standard.
Supporters often point to the euro as an example of a supranational currency successfully implemented by a union of nations with disparate languages, cultures, and economies. Alternatively, digital gold currency can be viewed as an example of how global currency can be implemented without achieving national government consensus.
A limited alternative would be a world reserve currency issued by the International Monetary Fund, as an evolution of the existing Special Drawing Rights and used as reserve assets by all national and regional central banks.
Arguments for a global currency
Advocates of a global currency often argue that such a currency would not suffer from inflation, which, in extreme cases, has had disastrous effects for economies. In addition, many argue that a global currency would make conducting international business more efficient and would encourage FDI.
Arguments against a single global currency
Some economists argue that a single global currency is unworkable given the vastly different national political and economic systems in existence.
Loss of National Monetary Policy
It is thought that with one currency, there can only be one interest rate. This is not true - government bond spreads in the Eurozone show e.g.
Political difficulties
In the present world, nations are not able to work together closely enough to be able to produce and support a common currency. There has to be a high level of trust between different countries before a true world currency could be created. A world currency might even undermine national sovereignty of smaller states.
Most modern currencies have an interest rate, while one of the largest religions in the world, Islam, is against the idea of paying interest for loans. This might prove to be an unsolvable problem for a world currency, if religious views concerning interest do not moderate. This is not necessarily a fatal flaw, however, as a large number of religious adherents who oppose the paying of interest are still currently able to take advantage of banking facilities in their countries which are able to cater to this. An example of this might be Islamic banking, which operates well enough in nations where the central bank sets interest rates for most other transactions.
Economic difficulties
Some economists argue that a single world currency is unnecessary, because the U.S. dollar already provides many of the benefits of a world currency while avoiding some of the costs.
If the world does not form an optimum currency area, then it would be economically inefficient for the world to share one currency.
A further argument is most easily conveyed by an analogy. Water carried in a biscuit baking pan will rapidly flow from high points to the lowest point, causing a sudden uncontrollable imbalance that forces the high points higher and the low point lower. The same quantity of water in cups on the biscuit pan will have no such inherent instability. Hegemonic currencies, free of regional limitations, flow rapidly away from high risk areas exacerbating their problems disproportionately to original causes. Such events are very damaging to the prosperity of the affected area. See for example the events leading up to, and subsequence consequences of, the Corralito in
