I’m no expert in economics, but this doesn’t stop me from having my own thoughts on all things economics. Thus, if my thoughts on economics are skew somehow, you have to forgive me for having a weak forte in economics. Hmm…, weak forte is an oxymoron? Anyhow, in this blog post, I like to persuade you why holding on to sovereignty is bad for a country which shares a currency with other countries. Beyond the scope of currency matters, the good and the bad consequences for a country to give up one’s sovereignty is entirely another topic in which I don’t want to delve into in this blog post.
There are 19 European countries that are using Euro currency. These countries are Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia, and Spain. Certainly, you can think these 19 countries that are using Euro as a region in the West, westward of Russia and China. To simplify things in this blog post, I like to say the West whenever I refer to these 19 European countries. Contemporary economic troubles that are stirring unrests and provoking new economic fault lines in the West can be argued that one currency Euro is the source of troubles of the economic crisis in Greece and several other Euro’s member countries.
In my opinion, the U.S. Dollar or the China Yuan or Japan Yen and so on has always been more flexible than Euro, because Euro is not a currency for a coherent country but for 19 countries with incoherent economic policies. Instead of seeing economic progress for all countries within one currency system, we are seeing some Euro countries do really well and others are either bankrupted or on the verge of defaulting. Incoherent interests among these currency sharing countries have divided these countries from forming up a coherent economic plan. Without a coherent economic plan, these currency sharing countries are failing to execute economic policies that would work for most if not all member states (i.e., countries that are using the same currency).
For an example, Greece of today may be a very good country for tourism and several other service industries, but this country does not have a strong foundation of manufacturing high value products. Taking this narrow point of view on Greece’s economic structure, we can see that Greece has to import a lot stuffs for internal consumption. What would happen when service sector and several other sectors fail to produce net profit for Greece? Greece has to spend less on internal consumption of course. Unfortunately, Greece’s economic crisis evolves with how Greece is spending more than Greece can make, thus the whole country is now bankrupted. In this situation, we can see that Euro currency isn’t able to dictate the economic policy to Greece in a way that Greece won’t have to go bankrupted. In this situation, Greece cannot print more Euro since it has no power to do so. If Greece can print more Euro, it may be able to attain more Euro to pay off the debts at the cost of devaluing the Euro. Without being able to print a country’s own money to get out of debts (i.e., work for short term at the expense of the purchasing power of the next generations), Greece may have to find other means of bringing home the bacons.
The example of Greece shows that country without one’s own currency can prevent a country from having a second chance of righting the sinking ship. Without being able to repair a sinking ship, how one can expect Greece to be able to get out of the economic crisis? Foreign countries can continue to lend money to Greece — increasing Greece debts without knowing for sure that Greece would be able to pay back — to help Greece sustains the sinking ship from sinking. Nonetheless, without repairing the hole from the sinking ship, no amount of extra lending would be able to suddenly make the hole whole. It’s like you keep on scooping the water out of the sinking ship while the hole keeps on letting in more water into the sinking ship.
Without having one’s own currency, a country may experience the devaluation of a currency without having any choice in the first place. For an example, Germany’s economy got most things right, thus Germany doesn’t need to weaken the Euro for generating an attractive export industry, but Greece and other European countries need to have Euro to be weakened for various economic benefits. If European countries are banding together to devalue the Euro for economic benefits, this means Germany will have to be a reluctant party to the devaluation of the Euro. If the Euro is being devalued, Germans will see their wealth being stealthily taxed away by other Europeans, because currency inflation weakens the overall health of the wealth holding of every German. Basically, Germans don’t have a choice if Germany wants to see Euro’s member countries devalue Euro for economic benefits.
In the long run, the disparity of the rich and poor members within a single currency system will become ever more so apparent. The disparity of such a scale within single currency system will be the force that can eventually break the system apart. Once the system breaks down, the rich members will go on, hopefully, with a better currency system. The aftermath of a broken single currency system will make things a lot harder for the poor members. The poor members will have to fight an uphill battle, because they lack the economic prowess.
A single currency system can work only if all member countries become one country! As each member country gives up the sovereignty, each member country has to act as a state and not as a country. This means the states need to listen to a centralized power. This centralized power will execute general, coherent economic policies. Sure, each state can have its own economic policies, but these economic policies would be localized and limited in scope and scale. Since each member country gives up sovereignty to become a state, it’s pointless to spend the money that they don’t have to upkeep big military as if a country would do. Thus the implication of truly giving up one country’s sovereignty for sharing a currency can go beyond the scope of economic matters.
Basically, a true country needs to be efficient in resource allocation. Nonetheless, a true country also needs to be able to generate needed resources in the moment of need, thus the power of printing money comes in handy. Perhaps, the power of mobilizing many states’ resources in a coherent manner in the time of need can also be very effective in stabilizing the crisis moment. As long a true country has a clear, efficient picture of the resource allocation, it can figure out which resource needs to be generated in extra for strategic purpose. The redundancy of a strategic resource can later bail out a country from a resource lack crisis.
If 19 European countries in Euro currency zone can become one true country, then the Euro may become more flexible. Nonetheless, one’s own currency doesn’t necessarily translate into healthy economy for a country. We had seen countries devalued one’s own currency to the point of the currency became worthless.
Quote from Wikipedia:
By late 1923, the Weimar Republic of Germany was issuing two-trillion mark banknotes and postage stamps with a face value of fifty billion mark. The highest value banknote issued by the Weimar government’s Reichsbank had a face value of 100 trillion mark (100,000,000,000,000; 100 million million). At the height of the inflation, one US dollar was worth 4 trillion German marks. One of the firms printing these notes submitted an invoice for the work to the Reichsbank for 32,776,899,763,734,490,417.05 (3.28 × 1019, or 33 quintillion) marks. (Source: https://en.wikipedia.org/wiki/Hyperinflation)
To conclude this blog post, in my opinion, one’s own currency allows the possibility of currency manipulation. Usually, a country manipulates its own currency to gain trade, tourism, and other advantages. Nonetheless, if not careful, currency manipulation can drive one’s own currency into a currency hyperinflation, leading to a worthless currency in which nobody wants to have anything to do with such a currency. Worthless currency won’t be able to support trade and so on. Sharing a currency is not the same as having one’s own currency, and the disadvantages of sharing a currency are many. The lack of the ability to freely manipulate one’s own currency, currency sharing country will have to rely on self-discipline in nation spending. If a currency sharing country cannot produce anything of values to bring in a net profit, a currency sharing country must cut spending even more since money printing isn’t possible, leading to apparent austerity and poverty.