Trends in world currencies

Since World War II, the number of currencies in the world has grown – simply because the number of countries has grown. But the expansion of world trade has made it increasingly inconvenient for each country to have its own currency.

This has prompted the formation of currency unions between countries. And it has led a number of countries to accept the U.S. dollar as their official currency. Not only has this facilitated trade, it has promoted price stability.

There are now 193 independent countries around the globe – up from just 76 in 1947.

Roughly 60 small countries have been members of currency unions for some time – including the 15-member Franc zone in Africa, the seven-member Eastern Caribbean Currency Area, shekel-based exchange in the West Bank and Gaza, and the 11 European countries that use the euro.

Currency boards that lock local currencies to the U.S. dollar or the euro exist in Hong Kong, Estonia, Bulgaria and Lithuania.

The latest country to tie its currency to the U.S. Federal Reserve is El Salvador – which recently said it would dollarise.

Experts predict that increasing numbers of Latin American countries will move toward dollarisation in the future.

Source: Robert J. Barro (Harvard University, Hoover Institution), The Dollar Club: Why Countries Are So Keen to Join, Business Week, December 11, 2000.

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