This is an opinion editorial by Nesrine Aissani, co-founder of the Zonebitcoin blog.
I was born in the 80s in an African country that had a calling “non-convertible” currency. I think it forever marked my way of thinking about “currency” and I felt that it 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 cannot be exchanged for that currency in the international currency market. Outside the country, this currency has no value; 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 every country in 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 macroeconomic 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 change its currency (and incur exchange fees and conversion fees).
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 country’s currency. Although the currency cannot leave the territory, it is possible through complex financial instruments such as undeliverable forwards (NDF).
Thus, in theory, it may seem appropriate for a country to prefer non-convertibility. However, there are some drawbacks to this process that some countries seem to be tied to.
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 is relatively low (unless you have a comparative advantage in exports or are a sought after tourist destination). This weakness in demand inevitably translates into a depreciation of the currency.
Naturally, the countries that benefit most from international trade are those that have convertible currencies. With each transaction, the demand increases and strengthens its legitimacy.
Therefore, it is clearly necessary, even essential, and more so in the era of globalization to have a currency that everyone can use and consult.
From the bretton forest agreement of 1944, it has been agreed that the US dollar will be the reference currency in international trade. Is named “exorbitant privilege“since it gives great advantages to the United States.
Bitcoin is already used as an international currency
Today, people from all over the world bitcoins are sent to each other as a means of payment. Many freelancers and remote workers are now paid in bitcoin. Migrants sending money to their families back home are another example of its use.
This is especially true in countries with the most unbanked populations. Bitcoin brings financial infrastructure closer 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 sense, bitcoin is already used as a universal currency. Some might say it’s just as easy to send dollars. It is enough 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 on the table again. It’s not a new idea, actually.
During the Bretton Woods agreement, John Mayard Keynes proposed the creation of an international currency called Bancor, fixed by a basket of strong currencies of the industrialized countries. His proposal was not accepted but his idea has continued through generations of economists.
For example, in 1969, the IMF (International Monetary Fund) created special drawing rights (SDR). The value of an SDR is based on a basket of major currencies. However, the SDR is not a currency in the classical sense, but serves as an international reserve asset.
However, this “international currency” is little known to 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, the problems based on the foreign exchange market and the conversion fees would end immediately. Countries would no longer have a currency 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 currency risk.
Economic data indicates that the switch to the euro for the European Union has a positive impact on trade, increasing bilateral exports by ~5.5%.
Furthermore, the global rules of finance would be leveled and all countries would be on an equal footing. For example, China has undervalued its currency for years to make its export prices more competitive with other countries. This manipulation of their currency would be rendered obsolete by 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, startups and start-ups could exist in countries that are currently isolated from the rest of the world.
Somehow, 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 equal for all.
Why some oppose a single global currency.
It is true that on paper, the advantages seem obvious. Still, some economists have said that would not be a desirable situation. For Robert MundellNobel laureate, “the optimal currency area is not the world”, because cohesion between all countries would be complicated, if not impossible.
Following in the wake of Mundell’s argument, a single international currency would make it impossible to practice different monetary policies. Since the countries are different from an economic point of view, this could benefit and destabilize other countries.
However, if we are stuck there, what approach should we take?
Bitcoin as the world’s currency?
Saifedean Anemous has championed the idea of a Bitcoin standard.
He explains it in his bookThe 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 would provide the new foundation for a functioning economy that would avoid recessions and debt.
We can only agree that the current world monetary system is neither fair nor equitable. This system creates more losers than winners.
The worst thing is that it doesn’t seem to be getting better. On the contrary, it seems that we have reached the end of our rope. You cannot 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.