A new merger: the dollar, yen, and euro?

Finance experts from 14 nations discuss the merits of a single world

Europe, Japan, and the United States will all have a common currency at some point.

Not now, says Richard Cooper, an economist at Harvard University, Cambridge, Mass. It is not politically realistic. Rather, in a decade or two.

Mr. Cooper sees a common currency as a logical way to deal with the fragility and fickleness of financial markets. Over time, this shakiness could worsen. One reason is that financial transactions between nations, as versus trade, will dominate foreign-exchange markets even more than they do today.

A currency union would eliminate foreign-exchange volatility in these three industrial areas, which produce two-thirds of the world's output. It would add stability to what is fast becoming a global economic system. It would facilitate trade and investment.

Cooper tossed out the idea at a conference here on "Rethinking the International Monetary System," put on last week by the Federal Reserve Bank of Boston.

The timing was appropriate. At the end of this week, there is a summit of the Group of Eight in Cologne, Germany. Kosovo promises to be the hottest topic on the agenda of President Clinton and the leaders of Germany, Japan, Britain, France, Italy, Canada, and Russia.

But the leaders will also look at what can be done to make the global system less crisis prone.

They may peek briefly at whether private financial institutions in rich countries should be required to help pay for losses emerging nations incur during a crisis. It's not likely.

Also on the table: Whether the International Monetary Fund should be strengthened to become a genuine "lender of last resort" in an international crisis, much the way a national central bank will rescue an important domestic bank in financial jeopardy. Not likely either.

But they are likely to move ahead with greater debt relief for the world's poorest nations, most of them in Africa.

Experts at the Fed conference, coming from 14 nations, do not expect the Eight to make major changes in the architecture of the international financial system anytime soon.

"What we are going to see is tinkering at the margin," says Sebastian Edwards, an economist at the University of California, Los Angeles.

What's more probable, says Mr. Edwards, will be changes by individual nations. Some will impose controls on short-term capital movements. More countries will "float" their currencies, that is, let their value in relation to the US dollar and other currencies be determined by sales and purchases on the foreign exchange market. Currencies worth trillions of dollars trade on that market every day.

Also, more nations will attach their currencies to the dollar, the euro, or the yen through what are known as "currency boards." And some will go whole hog and "dollarize," that is, replace their own currency with the US dollar.

Panama already uses the dollar as its currency. In Argentina, the dollar is legal tender and widely used along with the peso. A currency board keeps the value of one peso fixed to one dollar.

There has been considerable discussion in Argentina about going fully with the dollar and abandoning the peso.

Pedro Pou, Argentina's top central banker, complained here that despite eight years of a relatively inflation-free peso, it is still not "a true national currency." People, citizens or foreigners, are reluctant to borrow long-term in pesos, still remembering years of hyperinflation. This raises the cost of capital used to develop the nation.

Full adoption of the US dollar, he says, would improve Argentina's economic performance over the next 10 years.

One theory is that currency blocs will form around the dollar, the euro, and the yen. Then the three currency "biggies" would merge into a single currency.

Cooper sees the creation this year of the euro by 11 European nations as a major step in the direction of a single currency for the industrial democracies.

But Paul Volcker, former chairman of the Federal Reserve, doubts that any step will end financial crises, as long as greed, fear, and hubris are "built into the human genome." It is these characteristics that are behind crises.

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