The 196 countries on the face of the earth have 180 different currencies. But the world has been suffering from currency hegemony in the last century or so. Starting with the Pound in the early 20th century, the world also saw dominance by the Yen, the US Dollar, and recently, after its formation, the Euro. The Chinese Renminbi also showed its superiority when it was devalued at multiple instances in a short span of time. This sent the world capital markets on a ride, that only goes down. This gives every major currency unwieldy power that decides the fortunes of rest of the currencies, majority of which are pegged to either of them.
Before the emergence of high volume international trade, the primary function of any currency was to settle domestic transactions. But that is not the case anymore. The world is a highly globalised place today. And cross-border transactions are a thing of everyday that run into millions of dollars. In fact, quoting Jack Ma from what he said at Davos this year, in the next 20-30 years, it is going to be easier for small businesses to sell across borders. The volume of international trade is only going to go up, if anywhere.
When currency flows from one country to another, it loses face. In fact, specific channels have been made to allow foreign money flow into the country, majorly via FDI and FII. The need for a unique domestic currency is less than what it was a century back. Even if it is not the right time and doing it will be a slow process, the world should start looking to moving towards a single global currency.
Let me start by arguing using the Impossible Trinity. What the Impossible Trinity says, is that it is impossible for a country to have all of the following three, namely a fixed foreign exchange rate, free capital movement and an independent monetary policy. A country can have only two of the above given three. While the Eurozone countries have given up an independent monetary policy for a fixed exchange rate among themselves and free capital flow, other countries have given up a fixed exchange rate for the other two. With a single global currency, you take out the exchange rate angle, giving freedom to each country to set its own monetary policy and have free capital movement. This sets aside criticism of the failure of some Eurozone countries after the advent of the Euro. The Euro led to economic turmoil because those few countries, like Greece, could not devalue the Euro to make its own goods competitive in the world market, which it could have, if it had its own unique currency.
This brings me to my second point. Devaluing ones currency to make exports competitive are crucial tools for a country. But with markets open to such shocks, these are more like necessary evils. Most currencies today, barring the Renminbi, are dirty floats. Renminbi, a currency under the fixed exchange rate regime started devaluing, for a variety of reasons, sending other currencies and markets having any kind of exposure to it for a toss. After switching to single global currency, the need, or the scope of devaluing a currency will go away. Markets will become more and more competitive. Products will continue to sell, but will be priced according to their quality. The cause and effect cycle between adopting a single global currency and increase in volume of international trade will strengthen.
I do not understand the need of one Central Bank if there is only one currency in the world. The only important thing is that, the political boundaries of countries should be well defined. It is never the case that one country is trading with another, rather it is always that a firm from one country trades with another firm in another country. As far as this fact is established, restricting or liberalising flows from one country to another should not be a difficult job, be it trade in goods or capital. Even with most countries having their own currencies, this is happening and a different currency does not matter. This primarily makes me believe that if flows can be tracked, a country will be able to keep an independent monetary policy and hence, one currency will be possible even with different interest rates in different countries. This is in addition to the initial point I made using the Impossible Trinity.
Of course, the positives of having a single global currency are amazing. Trading will be extremely simplified, so will be moving around from one country to another for the purposes of leisurely travel, or even otherwise. The problems of deficit financing in your Balance of Payments will particularly go away, as they will be simplified. A single currency will be extremely strong, and hence proofed from failure. The transaction costs of conversion of one currency into another will go away. Prices, and hence inflation, worldwide will come down to a very reasonable and workable level.
These arguments are of course, utopian in nature. The political underpinnings behind every currency will want them to stay as it is. A country with a stronger currency will and can of course wield more power over the course of the world events. But looking at how the global economy is growing, and all the economic turmoil, a gradual but sure shift to a single global currency looks like a very safe and promising option.