"One euro?" the elderly Sevillian grumbles, slamming his paper on the vendor's table. "I'm not paying a euro for a newspaper. This used to be 100 pesetas!"
Europe's transition to the euro from local currencies such as the franc, lira and peseta has created price stability, shelter from external shocks and incentives for growth, investment and employment. Yet, the euro has also brought nothing but headaches to the individual consumer. While international newspapers extol the benefits of a unified currency, the minor inconvenience for local shoppers has often gone unmentioned.
In Seville, the rise in prices of ordinary objects certainly hasn't gone unnoticed. The switch has been especially difficult on the elderly and the unemployed, who have seen their purchasing power decrease severely, especially on items that were once less than a euro. In December 2001, you could buy a cup of coffee for 50 pesetas, a newspaper for 100, and a plate of tapas for 150. In January of 2002, after the peseta was discontinued, each of these three items cost a euro. Given that one euro is supposed to be worth 166 pesetas, it's easy to sympathize with the detractors.
Even now, four years since the switch, the confusion over prices is still apparent. Many stores throughout the city are still using double sided price tags, with euros on one side and pesetas on the other. Spain has even created a new word to deal with the confusion, euroredondeado, which means the error created in rounding pesetas to euros. It is not uncommon to see people in the small boutiques in Seville staring intently at price tags and muttering euroredondeado to themselves.
However, despite the detrimental effect on the local consumer, most people knew that the move was inevitable. Even from the earliest stages of planning the currency conversion, which can be traced as far back as the 1970 Werner report, there was little doubt that in order to compete with the United States, Europe needed to have a unified currency. On March 13, 1978, the singular European entity, the European Monetary Union, was created, with the goal of creating a unified currency modeled after the US. What has effectively been created is a United States of Europe.
It's difficult to argue that the switch won't benefit even the smallest consumer in the long run. Exchange rate fluctuations, currency based uncertainties, and transaction costs including currency hedging, cross border payments and foreign exchange operations have all been either eliminated or severely reduced while price transparency, intra-European competition, and foreign investment have all increased. The creation of a single entity supported by independent national markets has made the European financial market larger, deeper and more liquid. It has become easier for European companies to raise capital, and easier for investors to spread risk. The euro has become a key asset as a reserve currency and continues to expand Europe's role in international trade.
On a global scale, currency consolidation is becoming commonplace. In Africa, plans are under way to spread the Eco to Nigeria, Guinea, Sierra Leone, Gambia and Ghana, following the lead of northern Africa where eight nations, all formerly French colonies, have long shared a currency. The EC dollar, the currency of the Eastern Caribbean Central Bank, has added about a dozen nations to its list since 1981. The Gulf Cooperation Council is also trying to launch a joint currency, uniting Saudi Arabia, Kuwait, Bahrain, Oman, Qatar and the United Arab Emirates.
Is the next step a leap toward a global currency? Many experts predict that by 2040 that's exactly what is going to happen. Yet others, citing the success of the euro, are trying to get the world to seize the DEY, a combination of the dollar euro and yen. The arguments on both sides are strong.
The dey, mundo or global, as it might be called, would certainly help stabilize global trade. A global currency could eliminate the risk of national currency crises which we have seen in Argentina, Mexico, Thailand and Russia. It would also get rid of the need for countries to hold international reserves of foreign currency to solve balance-of-payments problems. Investors would no longer have to worry about large fluctuations of currencies such as the euro, which has moved from $1.17 to $0.83, and then back to around $1.22 again. Transaction costs on currency exchanges, a trillion-dollar-a-year business, could be eliminated, along with the hundreds of millions spent each year on hedging against currency risk. Global asset values would increase for countries with currency risk and global inflation could be reduced to an estimated two percent, making borrowing money much easier.
But who would control it?
As Eastern Europe hesitates to comply with EMU policy, showing the first signs of weakness for the euro, the prospect of creating a global organization to monitor a global currency seems distant. Plus there is the nationalistic sentiment. John Marthinsen, an economist at Babson College points out that the whole process is "a very emotional thing. It's like losing your flag." Not to mention losing your ability to cut domestic interest rates and boost consumer spending.
The biggest promoter of a global currency, singleglobalcurrency.org, says that a global currency could be implemented as soon as 2024. Most experts agree that the date will most likely be a little later. What the implications will be for the global economy and the individual consumer are yet to be known. And in Seville, a new word will have to be created to name the error created from rounding the euro to the dey.
