How does monetary policy affect the economy and what impact would a global currency have?

Monetary Policy

Monetary policy is each countries ways and means of creating a stable financial environment.  As prices fall and rise accordingly, monetary policy is driven to see those prices fall and rise at a slow pace; ultimately keeping up with the value of currency.  During a recession, monetary policy is thrown out the window; prices generally fall and supply is in the red.  These trying and devastating times have caused the government to leave interest rates low in hopes that supply and demand will boost the market.  As supply and demand goes up, most likely jobs will be created, prices will rise and inflation will set in; eliminating the current recession.  Many financial experts say that this fix to the economy and lowering of interest rates work well for a short period of time; but ultimately, it’s not a long-term solution.

However, for others, it seems the only way to restore some type of monetary policy to the financial security of the country.  Monetary Policy is nothing more than the countries plans on retaining a stable environment; it’s a plan and as most of us know, plans do not always follow the direction in which they are intended to follow.  The recent bank scares are just one example of the government’s plans for monetary policy falling short; basically failing. 

Global Single Currency

For those that see a Global single currency as a fix all to many problems, including the ability to stabilize the exchange rate, perhaps build more import and export of products, and eliminate transaction costs; in reality a global single currency could possibly cause the demise of monetary policy.  You see, once a global single currency is reached between countries; a shared interest rate will occur.  If one country interest rates drop significantly, it could cause the start of major inflation for that country; and on the flip side, if interest rates rise significantly in one country; it could possibly cause a recession.  One example occurred early in the twenty-first century when Ireland joined the Euro-market.  Ireland’s interest rates were steady at 6%; the monetary policy of that country was working well- there was neither a recession nor any type of inflation occurring.  Overnight, the Euro was introduced and the adoption of the lower 3% interest rate set forth by the ECB.  As a result, more and more Irish saw this as their opportunity to buy homes, supply and demand was great- prices began to rise.  And although, at first this new interest rate showed great promise for the country, ultimately, inflation set in.

It is no doubt that a global single currency would eliminate certain problems and make life easier for those that enjoy traveling abroad; however, the risks are more complicated and may have long lasting results.  Of course, for those of us in dire need for inflation and the lack of a recession; the idea may not sound to far fetched.  It would be nice to have a better housing market and more jobs created.     Many feel that the relation between monetary policy and a global single currency is nothing more than two financial terms.  However, in reality, the driving force between both could be the key connecting factor, interest rates.