What would happen if half the states in the U.S. issued their own money? And a dollar issued by one state had to be exchanged for the currency of another state while traveling or making interstate purchases?
It can't happen, of course, since the federal government is the only entity able to issue money. But in the early years of the republic, it did happen, until the federal government took full control of the money supply, over-ruling the ability of states and local banks to issue currency.
The concept is relevant today because about half the nations in the European Union subscribe to a single monetary unit -- the euro -- to be used by all in the group. Of the 28 countries in the EU, just 16 -- a bit more than half -- have converted to the euro as a universal currency, usable and accepted in each country.
Some nations -- Denmark, for example -- tied its currency to par with the euro even as the Scandinavian countries have had a longstanding agreement to link their currencies for ease of trade. Historically, Ireland too set its pound to be equal to the British pound when it achieved independence, but that ended when Ireland joined the EU and adopted the euro. Britain, however, has not yet adopted the euro.
Moreover, the issue is complicated by the lack of a central bank with enough authority to bail out or shut down troubled smaller banks. There is, of course, the European Central Bank, but for now it can only act on major banks, although there's a move afoot to strengthen ECB controls.
Meanwhile, the ECB can and does regulate the number of euros in circulation, telling each member country in the euro zone how many euros it can produce. The problem, however, is that nations in economic trouble can't inflate their currencies to gain an advantage in international trade. In addition, tariffs and import quotas are also banned among EU members. (More fun? Each nation has some discretion as to what to print. In Ireland, for example, the highest denomination printed is the 50 euro note, while Germany prints more 500-euro notes than all the other member nations combined.)
This monetary control issue was confronted as early as 1990, when a common currency unit was being discussed.
"Without a central institution, the system would therefore incorporate a strong incentive for countries to 'free ride' at the expense of their neighbors, i.e. to expand money supply ... excessively at home without bearing the full associated inflation costs." (One Market, One Money, in "European Economy," No. 44, October 1990, from the EU. http://ec.europa.eu/economy_finance/publications/publication7454_en.pdf)
So there must be central control of the money supply. However, when one region falls into dire economic straits, there is responsibility for others in the union to help. And because of centuries-old rivalries, that's not as available in Europe as it could be. For that matter, it could be better within the U.S. as well.
In North America, a Free Trade Act (NAFTA) reduces barriers to international commerce between the U.S., Canada and Mexico, but each country retains its own monetary unit and government. Within the U.S., each state has its own government, but interstate commerce is regulated by the federal government, which also controls the money supply.
The U.S. is one nation, while the EU, with an economy of similar size (about $16 trillion) remains a collection of 28 separate and independent nation-states.
After independence from Britain, the U.S. tried a confederation form, but that didn't work out very well, so a new Constitution was prepared that set up a stronger central government, even as individual states retained a level of independence.
However, the concept of states' rights -- what the Declaration of Independence in 1776 referred to as "free and independent states" -- remains strong in some regions in America, more than 200 years after the Constitution was adopted. And while a war in the 1860s established the supremacy of the federal government, there are still many who do not accept that.
So to a large extent, the European Union faces a similar issue. The EU has tumbled many trade, commerce and employment, as well as travel barriers throughout Europe just as the U.S. did more than 200 years ago. There are still, however, many cultural as well as language issues that stand in the way of full European political unity.
One thing is clear: Forced unity through war and domination of one group over all the others is not the answer. It has been tried before, and only led to death and destruction. That way madness lies.
Monetary and commercial unity is possible, through immense cooperation, but political unity is less likely. As well try to unify the U.S. and Canada. The offer of statehood was made more than 200 years ago, but Canada rejected it.
So to achieve a more perfect trade union, regions -- cultural, linguistic and monetary -- must give up some political independence. Even among the 13 American colonies that joined themselves together for a new nation, there were many differences despite having shared a common language and a common currency as subordinates of the British crown.
Political, cultural, linguistic and economic differences and suspicions may yet forestall closer ties in Europe, even to the extent of collapsing the European Union.
Perhaps it's possible that the U.S. and Canada will form "one nation, indivisible," even as the many nations of Europe collaborate for closer monetary and political ties.
But it's not likely.
No comments:
Post a Comment