Question

The use of different national currencies creates a barrier to further growth in international business activity due to conversion costs and exchange-rate risk 1. What are the pros and cons, among companies and governments, of replacing national currencies with a global currency? 2. Who (in your opinion) would manage a global currency? 3. How would this be implemented throughout the world? 4. What would the currency be? Would it align with a specific country? 5. What are the risks associated with a global currency?

Answer 1

1. Pros:- When the two companies replaces their own national currencies towards global currency, it will very helpful for the customers of respective nation to realize the original monetary value of the products they are consuming for their daily needs. They also plan accordingly to involve in the trading transactions across the boundaries which makes them to compare the level of internal value of the goods they are procuring in the domestic regions.

Cons:- After completion of transaction of both import and export of the goods by adopting the replacing the domestic currency with the global currency, poses some challenges of devaluation of the currency leads to price to rise with high level and thus pressure of inflation leads to cut short the production and services in their own countries.

2. We can able to manage a global currency by following and practicing hedging process. Hedging process refers to agreement of not loosing the value of both currencies of both import and export countries. It will protect the domestic currency value to face issues of devaluation and controls the inflation pressure. It will also safely ensure the net profits through balanced of payments from both the side of the countries.

3. In the World, Hedging process can be implemented by operating the anticipating procedure of calculating loss of trade deficit if any occurred during export and import process. World Trade Organization assists in the documentation process through mutual agreement made on Hedging process during recession period in order to avoid the imposed tax levying on all the countries.

4. Japan Currency Yen has the adjustable value of exporting the goods towards other developed nations in the world especially with US nation. It actually aligns with the US Dollar currency for the its trade transaction.

5. The Risk of the global currency are ascertained by the following facts. Firstly, when the country A imports the goods from another country B when its currency has high value. Then the country B need to pay for the required goods. It posses the transaction risk of global currency. Secondly, when the currency of the trading fluctuates in the recession period, it provides issues in the global market sharing benefits. It effects both the countries involving in the imports and exports. Thirdly, all the countries cannot able to predict and forecast the economic risk associated with currency value along with the position of the GDP and inflation for the short-period.