To facilitate a universal currency, EVERY country in the "universal zone" must give up rights to set interest rates to a common body. Basic interest rate parity, which holds in this world as far as I know. But there is no way you will see interest rates being the same in Japan and Australia for example. They are a good 600bp apart.
If Australia was to drop their interest rate to Japan's, inflation will skyrocket. IF USA was to increase interest rates to Australia or New Zealand's level, you will get a retail depression that will probably be followed by a recession. So who's to decide what interest rates to use?
Most countries aren't willing to give up monetary policy. A universal currency is kind of like a extreme peg. Just think of how Soros broke the bank of England due to pegged currencies of countries with different underlying circumstances. England is not even part of the Euro yet, so a universal currency is a long long way to go.
If I remember right the Euro itself took a while to settle down. A few years back it was extremely weak and definitely not representative of it's true value. Imagine if there suddenly was a universal currency, I can't imagine what will happen =P
In the mean time, just hedge your FX risks with options and futures =)
If Australia was to drop their interest rate to Japan's, inflation will skyrocket. IF USA was to increase interest rates to Australia or New Zealand's level, you will get a retail depression that will probably be followed by a recession. So who's to decide what interest rates to use?
Most countries aren't willing to give up monetary policy. A universal currency is kind of like a extreme peg. Just think of how Soros broke the bank of England due to pegged currencies of countries with different underlying circumstances. England is not even part of the Euro yet, so a universal currency is a long long way to go.
If I remember right the Euro itself took a while to settle down. A few years back it was extremely weak and definitely not representative of it's true value. Imagine if there suddenly was a universal currency, I can't imagine what will happen =P
In the mean time, just hedge your FX risks with options and futures =)
