"The global economy requires a global currency," wrote former U.S.Federal Reserve Chair, Paul Volcker. Indeed it does. Currently, $1.4 trillion are traded every day in the world currency markets at enormous cost and enormous currency risk. The current system of floating and pegged exchange rates has caused numerous currency failures with the consequent losses of hundreds of billions of dollars.
The misalignment of the Chinese yuan, as pegged to the U.S. dollar, has contributed to dangerous imbalances of world trade and world payments. The implemention of the euro, completed on Jan 1, 2002, has shown the way to a single global currency as 12 countries discarded their old and treasured currencies for the new, more stable currency.
Similarly, but not necessarily with the same degree of economic integration, all the countries of the world can work together to establish a single global currency. Such a currency may have a world-related name such as "eartha", "globo" or "mundo", and it may be a new currency, as was the euro, or a transformed form of an existing currency. The goal of the Single Global Currency Association is to implement a single global currency by 2025. The global central bank would operate in a manner similar to the European Central Bank or the U.S. Federal Reserve and ensure that inflation is kept to a low rate.
The governing boards of the global central bank would be representative of the peoples and organizations and states of the world. For more information, see www.singleglobalcurrency.org
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Although this system works in Europe, it can not be implemented on a world wide scale. The reason it works somehow in Europe is that the countries have a somewhat equal economic structure, and are dependent on each other like the states in the US. This way they have more or less similar economic development.
The main problem is: how do you set interest rates? This is already problematic in Europe, as German inflation is low and unemployment high, though other countries in the Euro-area have low unemployment and high inflation. Now think of trying to find the correct interest rate for both Japan and Russia.
Another thing is that countries lose an important stabilizing factor if they lose their currencies; only the ones with floating currencies of course, but why should they be punished for the fact that China has pegged their yuan. Or for the fact that other pegged systems have failed. Most countries have floating currencies. And a global currency would be an extreme version of pegging (think about it: the yuan pegged at 9. someting forever.)
Although sympathetic to the idea, I have to agree with Harald that it will not work under the current state of affairs. Once countries can agree on a common framework and set of financial and monetary agreements it might be possible. However, this is something that had never been attempted before on the scale you envisage. Furthermore, such a system will potentially have several emerging properties that we would not be able to predict. Therefore caution is well advised.
On the other hand, a lot of good can come from such a system as well. In the interim, it would be nice if some banks would offer international accounts with the account holder being able to specify the currency of choice. A smart card-based account that could be used anywhere in the world as ATM card, debit card, or as credit card, and with selectable base currency would come in very handy in some circumstances. This way, people could keep their funds in their own currency regardless of their own government’s actions. Furthermore, they should be able to switch to another currency at will. Surely there are risks involved in doing so, but I am sure that quite a few people from all over the world would love to have more choice in the matter.
Against for most nations. It is difficult enough to keep an economy at potential output with 2 policy levers (fiscal & monetary) doing away with one lever just makes it more difficult. Europe is learning that lesson. Trading currencies is not such an impossible task that a nation should cripple it's ability to steer it's economy.
That said some nations would be better off without their own currency so the politicians don't print it like mad and create inflationary problems.
We already have an international currency. It's been around about as long as civilization itself, and is universally recognized in its worth. It's called gold.
Gold is in finite supply, and there is no reason to think it will ever not be valuable. Paper money, on the other hand, is absoltely infinite and the economy is completely dependent on the whim of those who create it.