Global Currency Touted
As Monetary Reform

HONG KONG – To avoid future global economic meltdowns, maybe world leaders should accept a big suggestion from Nobel Prize-winning economist Robert Mundell.

Creating a global currency, valued according to a basket of top currencies, like the euro, Japanese yen, US dollar and others, would provide “an anchor for countries all over the world,” said Mundell, a professor from New York’s Columbia University. “We need a global currency. The world economy needs a global currency. It’s not just an academic idea.

“It would be a great vehicle for peace too, not just for economics,” Mundell told an overflow crowd on April 7 at the Hong Kong Polytechnic University. He participated in a Nobel Laureates Forum, one of several special events as the university inaugurated Professor Timothy W. Tong as its new president.

A world currency for international commerce would smooth the wrinkles caused by unstable exchange rates. “I don’t mean to replace national currencies,” Mundell said. But too often, fluctuations in the values of individual currencies, notably the US dollar, cause widespread economic turmoil.

Having prepared an early plan for a common European currency, Mundell is considered “the father of the euro”. His work on monetary/fiscal policies and currencies won the 1999 Nobel Prize for Economics.

He compared the recent Lehman Brothers (investment bank) collapse, “the biggest disaster in financial history”, to a mishap at sea. “If a sailor falls overboard and dies, it’s an abject lesson to the other sailors. But if his life is important, then probably he should be saved…, especially if he’s needed to sail the ship.”

Many analysts liken 2009 to the Great Depression. “But the present crisis has little in common with the 1930s,” Mundell said. “There’s no unemployment reaching 25 per cent of the labor force. Nor is there a great deflation amounting to 35 per cent, as happened from 1929 to 1932.”

The “right crisis” for comparison, one with double-digit inflation plus soaring oil and gold prices, happened from 1979 to 1982. Then too, the Fed (Federal Reserve) “screwed up” by “misreading signals” and adopting “wrong” monetary policies.

Another Nobel Prize winner (Economics, 1994), Professor John Nash, an economist and mathematician at Princeton University, also spoke at the forum. Nash specializes in game theory, differential geometry and partial differential equations.

In 2001, Hollywood based an Oscar-winning movie, A Beautiful Mind, on Nash’s life story. Oddly enough, brash and burly Australian actor Russell Crowe played the role of the physically frail Nash.

The Hong Kong audience expected Nash to discuss the world economic crisis too. Instead, he hinted at not yet reaching firm conclusions on that. Then he presented some of his work about “ideal money”.

“There has always been some populist thinking in the U.S. which can encourage ideas about money that are not well based in any scientific sense,” Nash said.

Never assume that those who govern can “herd” everyone who manages money, he added. “Sometimes the herd can get out of control.”

Another problem is that central bankers and money managers may not do the right things. “What will they do since there’s politics and finite wisdom? If they’re required to do the right thing constitutionally, perhaps that’s better.”

One listener asked about the US dollar’s future value. “Great currencies are associated with big economies,” Mundell said. The U.S. has problems, but “don’t count the dollar out. It goes down, but then comes back up. After each crisis, it becomes stronger and more important again.

“That’s why it’s difficult to get the world off the dollar standard – because the U.S. is such a big economy. The dollar and its asset in the U.S. economy are stiff competition for the idea of a global currency.”


Professor John Nash: 'Sometimes
the herd can get out of control.'


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