David Wolman

Saturday, Feb 11, 2012 8:00 PM UTC

The case for a global currency

Would it make more sense to have one currency for the entire world?

By David Wolman

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(Credit: Voloh via Shutterstock/Salon)

This article was adapted from the upcoming book, "The End of Money," in bookstores Feb. 14 from Da Capo Press.

In the age of globalization, what does it mean, really, to be from one country and not another? We have some easy answers, along the lines of language, shared history, cultural references, and geography. I grew up cheering for the Red Sox, not the Hiroshima Carp, so that adds to my American-ness. I had to learn about the Federalist Papers in high school. I pay taxes and vote here. All of these things, some minor, some major, contribute to my sense of being part of this country.

Greenbacks do too, whether I like it or not. The coins and banknotes of a place are one of the few remaining touch-points of national identity left in our increasingly digital world. The monuments, symbols, and famous people splashed on them help reinforce this sense of nationhood. But as representations of the currency, they do more than that, because the currency is both the fabric of the economy and the stitching of the state. Even Marco Polo saw this in China, as the currency pulled a vast kingdom together under one umbrella of economic organization.

In recent times, though, having a national currency, at least for smaller countries, is looking more and more anachronistic. At the minimum it should be up for debate. Benn Steil, an economist at the Council on Foreign Relations, told me that when he lived in Europe in the 1990s, the old saying was that to be a country you needed an airline, a stock exchange, and a currency. By the twenty-ﬁrst century, that was hardly the case: airlines had merged or gone bankrupt, stock exchanges had consolidated, and the euro had become the dominant currency of the continent. In the years ahead, more and more small countries may decide to quit their currencies and adopt that of a more powerful neighbor (the Australian dollar in parts of Oceania, for instance), band together with nearby countries to form a currency block (e.g., the East African Monetary Union), or jump aboard an international powerhouse like the U.S. dollar or the euro.

All kinds of factors could sway this decision: runaway inflation, fear of currency crises, too little infrastructure to manage the cash supply, an unexpected rash of counterfeits, hope of greater competitiveness in global trade, and the wish to put an end to potentially dangerous speculation about the currency’s worth next week or next year. Steil points to relatively strong economic growth and stability in countries like Ecuador, El Salvador, and Panama, which have all officially adopted the U.S. dollar. Even where the local currency still reigns as far as officialdom is concerned, “spontaneous dollarization” is widespread. More than half of the bank deposits in Latin America are denominated in U.S. dollars.

Steil’s thesis hinges on the fact that most monies in the world are unattractive to people who live outside the countries where those currencies circulate. Notaphilists may keep Icelandic króna in their collections, and my dad still has the Samoan, Cuban, and Egyptian banknotes I once gave him, but investors won’t hold these currencies as a store of wealth, says Steil — “something that will buy in the future what it did in the past.” The same goes for the Argentine peso, and doubly so for currencies of absolute-shambles countries. Know any friends who are denominating their kids’ college savings accounts in Somali shillings? Exactly. At the same time, while all countries conduct trade to grow their economies, smaller ones eat extra costs for perpetually converting from the local currency into something else. There’s also the fact that countries generally need U.S. dollars to repay their creditors.

Dumping the national currency would also protect people from harmful manipulation of the currency’s value by corrupt or incompetent public officials. Which begs the question: would a handful of regional currencies, or even a single global currency, help to prevent such disruptions, and by extension improve prosperity?

As for citizens in the United States and Europe, when other countries adopt the dollar or the euro, we proﬁt from seigniorage—or the government does, anyway. By putting more money into circulation— inside or outside our borders—the Fed pockets the interest generated from this process, so it’s really no skin off our backs, provided those countries understand that the United States will never make monetary or economic policy decisions because of conditions in some other country that happens to use our currency.

This idea of pulling the plug on small-country currencies made all kinds of sense to me, right up until the insanity in Greece. Greece’s crushing debt was partly the fault of government officials who cooked the country’s books so that the nation could meet the standards of economic stability necessary to join the euro a decade ago. At the moment, the euro looks like a suit that is ﬁve sizes too small, and Steil’s Foreign Affairs piece calling for currency unions seems distinctly out of sync with the times. Maybe the króna and other tiny-country currencies have a future after all. But other leading currency experts assert that this is a short view of the euro situation, and that after this period of turmoil it’ll bounce back stronger than ever.

As Steil and his sympathizers see it, countries with their own currencies invariably walk in monetary step with their major trading partners: Mexico’s currency generally tracks to the U.S. dollar, Sweden’s krona closely follows the value of the euro, and so forth, and this is the case no matter how autonomous those countries’ central banks may think they are, and no matter how patriotic the artwork adorning their banknotes may be. As Olafur Isleifsson, a professor of business at Reykjavik University, told me: “We didn’t have monetary independence before. The central bank moves were all forced moves, like in chess. Monetary independence is a phantom.” I kept hearing this basic idea whenever I spoke with people about ending small sovereign currencies in favor of regional ones, but the debt ﬁascos in Europe show that this is anything but a deﬁnitive forecast of what lies ahead.

For economists, this dispute cuts to the core of the most macro question there is: what monetary system offers the best route to a more prosperous future for the most people? Starkly different answers to that question reveal how divided scholars are about what it takes to keep economies healthy, and even about the utility of sovereign currencies. As if the stability of the whole show wasn’t tenuous enough already.

Nevertheless, the fact remains that more countries, especially biggies like Turkey, want to adopt the euro. (Poland and the Czech Republic, also in line, slowed down their efforts to join in light of the debt crises, but analysts say these countries will eventually join as well.) Leaders in these countries and elsewhere are convinced that the advantages of getting hitched outweigh those of going it alone.

A third way to buttress the value of a national currency is to tether its value to that of another one that is more stable. This strategy has worked for a number of countries, and some experts argue that the availability of this tool can make the idea of regional currencies look like a moot point. Why terminate the central bank’s ability to manipulate the money supply in an emergency if you don’t actually have to? Steil says this approach is still precarious and can end up robbing people of their money: “Which would you prefer. One: I give you $100. Two: I give you a hundred pesos, with a promise to redeem them for $100 if you ask? Option two is a currency board or ‘hard peg,’ which is what Argentina did until 2002.” That was when the Argentine government reneged on its promise to redeem pesos for greenbacks. So much for your 100 bucks.

Steil is hardly the ﬁrst person to have thought about regional currencies, or to challenge the government imperative to issue money, but he’s one of the most vocal. The concept of optimal currency areas was coined by economist Robert Mundell in the early 1960s, and since then there have been a handful of campaigns to bring the idea into practice — a few of which are slowly moving forward, in Africa and the Middle East most notably.

On the one-world money front, there are scattered dreamers out there, outfits like the Single Global Currency Association, and supporters of something called the Terra TRC (for Trade Reference Currency). In the 1940s, the legendary John Maynard Keynes conceived of a supranational currency that he called the Bancor. The idea can be likened to the constructed language of Esperanto—one common tongue for all humankind. Why not one money for one world? Supporters of Esperanto believe it could someday reduce miscommunication and, by extension, promote world peace. Backers of a single Earth currency envision a great smoothing of transactions, an end to damaging currency speculation, and less economic turmoil, which could mean greater prosperity for all.

While Esperanto struggles for credibility, some economists seriously consider how a one-world currency might happen, albeit in a highly theoretical future. One idea is for this new currency to be an expanded version of something that already exists: Special Drawing Rights. SDR is really a crossbreed of four of the world’s most signiﬁcant currencies, and it’s used for particular kinds of settlements at the IMF. Perhaps the SDR is the embryo of a new global currency. Not that this would be a geopolitical walk in the park. “No global government . . . means no global central bank, which means no global currency. Full stop,” says UC Berkeley economist Barry Eichengreen. And a world government, lest we forget, is an apocalyptic prospect to a hell of a lot of people.

At the same time, however, many Americans’ image of the future incorporates this idea of a global currency—one Tolkienesque coin to rule them all. According to a Pew Research Center survey, 31 percent of Americans think an asteroid will smack into Earth by 2050, but 41 percent of them said they expect to see a shift to a global currency. We have it in our minds that dramatic change is on the horizon, even if the variable currencies and colorful cash we currently trade in and travel with seems like a permanent aspect of modern life.

From the new book “The End of Money: Counterfeiters, Preachers, Techies, Dreamers — and the Coming Cashless Society” by David Wolman. Reprinted courtesy of Da Capo Press.

Sunday, Aug 31, 2008 11:08 AM UTC

This place is the bomb

Something wild is happening on Christmas Island, once ground zero for nuclear test explosions.

By David Wolman

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Driving south on Christmas Island’s lone north-south road, Tonga Fou and I are heading to the spot where, 50 years ago, the British military detonated a couple of thermonuclear weapons. Fou, 81, smokes USA Gold Full Flavor 100 cigarettes. As he runs a leathery hand across his forehead, he recalls his experience during one of the test explosions.

Crowded onto a military vessel in case of an emergency evacuation, Fou huddled with his wife and two children. The blast shook the boat, as if it had been shoved by a deity, and everyone winced as their ears popped. About a minute after the detonation, Fou wandered on deck, looked up and thought the world was coming to an end. “It was just terrible,” he says. “The mushroom cloud was beginning to come up, with these bright colors, like breaking waves of fire, going up, bigger and bigger, until the sky was all red.”

Between 1957 and 1962, this former British colony in the equatorial Pacific played involuntary host to 30 nuclear explosions conducted by the British and U.S. militaries. Code-named Operation Grapple, Britain’s tests at Christmas (also known as Kiritimati) and neighboring Malden Island ranged from a 3,000-kiloton explosion 8,200 feet in the air and far out to sea, to a 24-kiloton “balloon-suspended air burst over land.” (For comparison, the bomb dropped at Hiroshima had about a 15-kiloton yield.) With thousands of troops, weekly DDT spraying to keep fly populations at bay, and a steady stream of boats and airplanes delivering ever more provisions, it’s safe to say that the Cold War’s tenure on Christmas Island didn’t exactly follow the mindful traveler’s dictum: Take only pictures, leave only footprints.

But things change, even in places where WMD have inflicted their catastrophic toll. The Partial Test Ban Treaty, signed in 1963, brought an end to U.S. and British testing in the region. In the ’70s, the British government followed up at Christmas with Operation Hard Look, investigating whether radioactive fallout might be found on the island and, if so, determining what to do with it. They didn’t find any, although there was no shortage of trash — abandoned vehicles and drums, mostly, decaying rapidly in the humid climate.

In 1975, American surveyors drew the same conclusion about lingering radioactivity. Still, for goodwill, to avoid future liability, or both, the British recently carried out a cleanup operation on Christmas, carting away tons of decades-old debris, most of which had been concentrated in a junkyard next to the village of Banana and totaled more than 30,000 cubic yards of material. Last May, the final shipment of waste was loaded onto a vessel bound for the U.K.

Fou is the last living person on Christmas Island who was here when the nukes, nuke scientists and soldiers came to town. Now only fragments of that era remain: old truck tires stacked as a makeshift fence between village huts, concrete platforms where buildings once stood, a rotted wooden backboard on a metal pole — what was once a basketball hoop for recreating servicemen — and a crumbling church constructed of dead coral and concrete.

What can be found in abundance, however, is nature. In the intervening decades since the era of nuclear-weapons testing, the natural world has quietly rebounded. Today, Christmas Island, Bikini Atoll and other Cold War proving grounds, like Monte Bello north of Perth, Australia, constitute some of the most ecologically intact corners of the world, emitting not radiation but a peculiar allure; it’s atomic tourism with a naturalist spin.

Marine biologists diving at Bikini have returned with glowing reports. Inspecting a mile-wide crater left by a hydrogen bomb that exploded with a force 1,000 times greater than the bomb dropped on Hiroshima, researchers recently found the lagoon to be 80 percent covered by thriving corals, with some species growing into huge, treelike formations.

Karen Koltes, a coral specialist with the U.S. Department of the Interior, says reefs around places like Bikini “are among the few examples left in the world of what an ecosystem looks like absent human presence and exploitation.” (Unintentionally pouring on the irony, scientists will sometimes employ the word “pristine.”) This nature-despite-nukes contrast can be seen at other former test sites, such as the waters surrounding Alaska’s Amchitka Island where, 40 years ago, the U.S. conducted three underground explosions. The same is true of the desolate dunes of a former French test site in Algeria, and even the scrublands inside the fence at the Nevada Test Site.

Radioactive materials are long-lasting, which is what makes them both scary and misunderstood. The smoke detectors in your home likely contain a radionuclide called americium. But the reason to worry about them has nothing to do with radioactive material and everything to do with whether the detector’s battery is working. Contrary to popular belief, previously bombed geographies are not transformed into lifeless, poisoned landscapes for the next 50,000 years. Hiroshima and Nagasaki look just like every other bustling Japanese city, and crawling around in the grass of a city park there is no different than doing so in Seattle or Milan, Italy, or Auckland, New Zealand, at least as far as radiation hazard is concerned.

But that’s not to say everything is peachy with former nuke test sites. Radioactive fallout, and the dizzyingly complex study of it, depends on factors such as microclimates, local geography, wind, altitude of detonation, size of the bomb and environmental conditions on the ground like soils, rock type and vegetation. There are places in the Pacific you don’t want to go and probably can’t — that’s why they’re off limits. The same is true for parts of the Nevada Test Site and other detonation locations.

On or around once-pummeled Pacific Islands, the matter of harmful radiation depends on where you go and whom you ask. Christmas Island, as far as anyone can tell, was always safe from radioactivity, thanks to winds that carried fallout out to sea. And in the ocean — not just around Christmas but anywhere — radioactive materials dilute quickly, rendering them essentially harmless. It’s when they’re concentrated that they can be dangerous.

At places like Bikini and Rongelap Atolls in the Marshall Islands, the picture gets murkier. In the 1950s, the locals on Rongelap watched fallout, delivered on the wind, sprinkle down from above like snow. (And this from a people who had never seen snow.) The islanders were evacuated, only to return and then evacuate again years later because of renewed fears about perceived radiation hazards.

Today, the people of Rongelap are planning to resettle their homeland yet again. The government of the Republic of the Marshall Islands wants the U.S. to cough up money and medical support for cancers caused and damage done during the era of nuclear testing. The U.S. says a previous settlement of $150 million should have done the trick, and this conflict remains a contentious one, at least for the Marshallese. As for existing radiation hazard, U.S. and independent scientists say there is none, although you wouldn’t want to dine month after month on certain local plants that accumulate radioactive material.

Still, it’s one thing to accept government reports declaring that a place once used for thermonuclear target practice is fallout-free and not hazardous to one’s health. It’s quite another thing to travel there on vacation.

Geiger counter in hand, I hopped off the skiff and onto the coral beach at the tiny island of Motu Tabu, inside the lagoon at Christmas Island. Rain showers gave way to a mix of billowing clouds and hammering equatorial sunshine. The cacophony from the seabird colony intensified as I approached, but the thousands of noddy and sooty terns did not leave their posts, standing guard over black-speckled eggs. Encountering animals so unaccustomed to human visitors, I thought of Darwin in the Galapagos.

I switched on the Geiger counter and squinted at the digital display. The readings were minuscule — 0.008, 0.003, 0.006 milli-Roentgens per hour — numbers indicating nothing more than background radiation from the sun, and noticeably lower than the background radiation levels one would find in a typical American city.

For an unconventional island adventure away from it all, Bikini may have the name recognition, but Christmas is easier for most Americans to get to — just a three-hour flight from Honolulu. The largest coral atoll on the planet, Christmas is 124 square miles of land, set in the shape of a globular crucifix, with two spits at the northern end enclosing a lagoon. (The island first became known to the Western world when Capt. James Cook discovered it on Christmas Eve, 1777.)

The island is perfectly — no, ridiculously — flat. The highest point is a 35-foot-high mound, Joe’s Hill, erected by a British serviceman who was bulldozing coral and tar sands to construct the road that runs the length of the island. According to one account, he made the miniature hill as a perch for camping, preferring the seaside solitude to the military barracks. The rest of the island setting is made up of palm trees, a ubiquitous plant called saltbush, inedible crabs skittering everywhere, and sun that will burn you through a T-shirt.

In 1979, the British ceded possession of the island, and Christmas became the easternmost outpost of the scattered island nation of Kiribati. Straddling the international dateline, the country covers an area of the Pacific Ocean equal to that of the continental U.S., even though the tiny islands together total 311 square miles. The island’s 5,000 residents subsist on international aid, tropical fish exports and scarce tourist dollars. They live in tiny villages composed of huts and yards patched together with tin, palm-thatched roofs and pigs roaming streets littered with rusting corned beef cans.

The splendor of this place is out on, and in, the water. Fly-fishing enthusiasts who come to Christmas are on a pilgrimage to stalk the elusive, torpedo-fast and deceptively strong bonefish. Christmas is home to the largest bonefishing flats in the world, shallow waters in which the fish feed on tiny shrimp, sometimes revealing their whereabouts by nosing into the sand and extending their sparkling silvery tails above the waterline. When I called one fly-fishing expert who had been to Christmas to ask for a few travel tips, he said, “If you go there without a fishing rod, you should be shot.”

Vacationing anglers, decked out in $100 UV-protective shirts, long-billed hats and polarized sunglasses, carrying in their rod setup and tackle cases another $1,500 worth of gear, spend upward of 10 hours a day wading in the calf-deep waters of the lagoon, casting shrimp-shaped flies toward their prey. The visiting sport-fishermen are so essential to the barely extant island economy that locals are, at least on paper, forbidden from eating the bonefish. (Inedible in the eyes of most Westerners, bonefish are part of the islanders’ regular menu.)

But some non-fishing-obsessed travelers do manage to make their way to Christmas. One morning, paddling kayaks on the far side of the lagoon, Garry and Kerry Phillips of Brisbane, Australia, were delighted to spend an afternoon in a place where they didn’t see another soul for hours — only manta rays gliding through the shallows. Having traveled and scuba-dived throughout the Pacific and points beyond, they were stunned by the quality of what they saw on the island of nuclear detonations.

“When we were looking into this trip, I did consider the weapons,” recalls Garry. “I wondered if it might look like a concrete wasteland or something.” But after a week spent kayaking in the aquamarine flats, snorkeling among kaleidoscopic reef fish, and then, at the seabird colony, appreciating the chance to spot rare bird species such as the phoenix petrel and red-footed booby, Phillips laughed at his pre-trip preconceptions. “The contrast of it is amazing. I mean, the hydrogen bomb is the most powerful and destructive thing there is, right? Yet out here, this place, and the reefs we saw yesterday — it’s just gorgeous.”

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