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Comment by rrrazdan | Hacker News Reader

Because US has intra-state fiscal transfers. Money is transferred from one state to another, indirectly. So richer states in some senses subsidize the poorer states. And they can borrow based on their combined financial outlook.( aka Federal Bonds). So you have a fiscal policy that is somewhat cohesive, a monetary policy that is completely cohesive. And this is why US states cannot have different currencies.

Besides long story short, inter state trade would be severely burdened by different currencies. One of the primary reasons for Euro was to facilitate trade.

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Within the EU - the richer countries subsidise the poorer ones.

See: http://en.wikipedia.org/wiki/Budget_of_the_European_Union#St...

This table shows the net contributions over the period 2007-2013. As you can see France, Germany and Britain will each contribute an average of over €60Bn over that period where as others like Poland are big recipients, receiving a net benefit of some €65Bn. I can't immediately find the numbers, but I am guessing this is at least comparable to the US inter-state subsidies.

Also, when one part of the country is doing poorly, it benefits from Federal taxes paid by people in wealthier parts—e.g., no matter how much Michigan’s state budget is in the toilet, Michigan’s senior citizens will still get their Social Security checks.

The eurozone has the worst of both worlds: Greece can’t devalue its currency to alleviate its fiscal problems and there’s no Europe-wide social safety net to assist Greek people who are being screwed.

No, that is orthogonal to the currency issue, you can have the same currency and no wealth transfer or different currencies and wealth transfer.

As the Greece example shows very clearly, this does not work in the long run.

By the way, this is also the reason that the gold standard failed. The gold standard was essentially a currency shared by the entire world. This had some advantages for international trade, namely no or reduced exchange rate risks.

However, differences in how productivity developed in different countries ultimately led to countries being squeezed out of money to the point where politicians either had to default or rule by violence against their own citizens.

A currency cannot survive for very long unless there is a significantly sized central authority that balances inequalities and acts in the interest of all citizens of the currency zone.

With computers, does this matter? When I buy stuff online in different currencies, I just let the credit card do the conversion.

Seems to me it's more to subsidize poorer regions than anything else.

The kind of trade that we're talking about here isn't consumers buying a few books or DVDs online. For business to business deals where the counterparts aren't using the same currency one of them would have to take a risk due to the exchange rate changing (or pay money to hedge against it). And that risk could be significant even for one-off transactions with Net30/Net60 payment terms.

Of course for a large multinational dealing with these issues comes naturally. But for a small to medium business dealing with different currencies is going to cause a lot of friction.

Sure, that is the role of banks.

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