We see the problem of coincidence of wants here with regard to currency transfers, and the real effects of attempting to alleviate it. National currencies just don't make sense in a globalized economy.
This is, btw, exactly the reason why the interest rates are pushed down as a consequence of Novo having success.
If the Danish central bank did not need to maintain this peg, they'd probably just let the value of the DKK increase relative to the USD – instead this manifests as more expensive housing in Denmark as the interest rates are kept artificially low.
Assuming the majority of purchasers of Danish housing are made by those who are paid in DKK, so this is in fact keeping the prices low.
When the cost of servicing a mortgage goes down, the price will go up.
How do you support that prices should go down?
The DKK is pegged to the EUR at 750 +- some percent. This means that the Danish central bank has large foreign currency reserves to adjust the value of the DKK when trade create imbalances.
As I wrote:
> It is soft pegged and has leeway. > This is, btw, exactly the reason why the interest rates are pushed down as a consequence of Novo having success.
Currently the Danish central bank runs with an interest rate that is lower than the EUR-zone to protect this peg. Ie. it is cheaper to borrow money in Denmark and the DKK/EUR rate is constant.
The reason that it is actually not more expensive to buy housing in Denmark is because of the rather unique martgage system we have (we trade mortgage bonds directly in the market) and laws regarding vacant housing (it can not stay vacant).
We have this notion that currency is managed in a super-political way. However, there is everything political with currencies and currency management. It is literally the difference on depression and labor shortage.
For me, it is weird that this responsibility is deferred from political processes and the democracy.
If a sovereign country wants to own its own politics, it also need to own its own currency.
National currencies are fine in an environment where most economies are mostly domestic, because the effect of import and export on currency availability and foreign currency exchange is miniscule. This was the environment when these national currency schemes were devised. In a globalized economy, every country has trade imbalances which means they all need to have foreign currency reserves, adjust their reserves when economics change on the ground and adjust interest rates, this is a massive overhead for every country in the world that doesn't need to exist.
For the small ones, cooperation bring power, it does not take it away.
Effective, yes – just like a single party system is more effective than having multiple parties and democratic processes.
more sovereign – how? I really can't see how Spain is more sovereign managing their unemployment issues when they can not control supply of their own currency, and thus investment?
Control = power x influence. The argument was that more control can be had through having a local currency. I think, for smaller countries, more control and thus more sovereignty is had through teaming up, because the cooperation is (at least in the case of the EU) democratic, and is a tool more powerful than any national tool ever could be, and therefore control is larger.
So quite a bit ends up canceling out with central banks creating currency from thin air to exchange for currency foreign central banks created from thin air.
If that were true, then you would happily trade your American dollars for rubles. Because it just doesn't make sense that they should be valued differently, right?
But saying that we should switch to a global currency does not mean one thinks different national currencies are the same. In fact, it very much implies the opposite, because then you already essentially have a global currency in all but name.
I believe what would happen with a single world currency is that it would generally be very unstable due to things like war, economic policy that proves disastrous for one or more of the members of that currency club, and as a result it would become untrusted.
For instance, recall the US housing crisis of 2008-2009. This caused massive economic damage, and resulted in the United States printing money at unprecedented levels. Imagine now that the world utilized a single currency and one single nation faces a similar crisis. Would the world be expected to accept that the entire currency should be devalued due to excessive money printing simply because a small member country couldn't keep their shit in order?
To frame this idea in a simpler fashion, imagine a single person named Scott who creates their own currency. That person hands out the currency when purchasing goods and services, and later on people can come back and spend that currency in order to purchase Scott's belongings. This works pretty well because Scott never hands out currency that he isn't able to back up with his belongings.
Now imagine that there is a group of ten people who print their own currency, and you can use that currency to purchase the belongings of any of those ten people, regardless of who gave you that currency. Let's imagine that Scott is by far the richest person in that group, and Carlos is the poorest. When Scott hands out massive amounts of money for legitimate goods and services, that money can now be spent amongst any of the ten members. Let's imagine that someone decides to spend that money to purchase the belongings of Carlos. It turns out that Carlos does not have enough belongings to sell compared to the amount of money possessed by this spender. Nonetheless, all of Carlos's goods are purchased in one fell swoop (before inflation even has a chance to show itself), and Carlos now has zero belongings.
Now imagine that instead of being a person, Carlos is a country. No one living in that country would be able to purchase goods anymore, because they were bought out. This would result in ridiculous inflation (meaning that the purchaser of those goods received a massive discount compared to the real value of the goods purchased in that place), and the country's economy would essentially be broken with no fix on the horizon as long as they continued to use that same currency.
I think it's important to remember that currency isn't just printed paper, but a promise that you can redeem that paper for goods and services. When an entity is no longer able to provide goods or services then the currency that entity uses loses value because it cannot be trusted to be redeemable in some places. If that currency happens to be the common currency used by the rest of the world... well, sucks to be the rest of the world I guess.
Keep in mind that when a country which uses their own local currency experiences economic problems, they can still purchase more reliable currency using their unreliable currency, and then purchase goods from that place reliably (even though that other country won't be able to do the same). Because the other country cannot reliably purchase goods from the economically compromised country, they will impose a very high exchange rate based on the risk that the exchanged currency will not be redeemable. This is the essential quality that local currencies possess, an exchange rate. Exchange rates are what keep global currencies sane, and based in reality.
TLDR: The value of a currency depends upon the ability for holders of that currency to redeem it for goods and services. The reason the dollar is strong is because goods and services from the United States can be reliably purchased using the dollar. If the United States magically ran out of goods to sell then the dollars they printed would be worthless. If the entire world used the same currency then it would be all but guaranteed that the currency would be unredeemable in some places, and as a consequence the value of the currency would drop.
Likewise, if you disagree with my critique, just respond.