Pros and Cons of One World Bank

Abstract – Pros and cons of one world bank 

It can be understood that the inflow of the economy in a particular region can strengthen the region economically and at the same time it can also pose a risk due to the financial market crisis. This article would through light on how different factors alter the economic status of a particular region creating vulnerability to risks from the global financial markets. It will also bring out some of the shortcomings of having a single banking system. As the European Union is going through a tough financial crisis, nations in the European Union are facing a hard time to come out of this situation as most of the leading European banks suffer heavy debt.

The European Union has been a victim of enormous debt and is going through a tough time since 2009. Weaker economies like Greece, Portugal, and Ireland are the primary victims of this collapse either by way of being weaker economies in the European region or being a potential target of a global recession. Despite repeated efforts for negotiations, investors seem to be losing confidence for restoring growth from the financial perspective and help the European nations come out of the debt trap. The debt crisis has caused deep mental trauma to the European Union as nations like Germany has refused to help the European Debt Crisis (2012). As every country in the region has its own resources and wealth, their attitude towards viewing this crisis differs due to the fact that countries like Germany are still in a better position as compared to countries like Greece or Italy.

On one side Germany shows no interest in helping its European neighbors and on the other side Italy seems to lose its rich natural resources because of its bad governance. Greece has always been deprived of the amenities its neighbors enjoy being rich with valuable natural resources. Now despite European countries being rich in terms of natural resources and some of them being very wealthy in terms of technology and commerce, they are bound by a single currency factor –Euro which is the main cause of their concern. To put it in simple terms, it means euro or single currency idea was not a sustainable economic model for the European Union. There is a great level of uncertainty in the European region due to the fact that Banks of Europe face great amount of debts Davidson, Goldstein, Kenney (November 30, 2011).

The debt crisis in the region broke out in the summer of 2007. Banks faced an acute problem of liquidity and difficulty to rollover the debts. The scenario became worse when banks restrained credits, started cutting down on credits. Due to the impact on economic and trade activities, businesses and consumers started falling in terms of investments and confidence. Their trust level fell to the lowest levels. Market values of financial institutions disappeared, stock markets were completely shaken and tens investors turned towards secure investment options like sovereign bonds. Because of the quick and prompt responsiveness of the central banks and the government authorities, the situation of financial depression in the region was controlled. The economic crisis in Europe: Causes, consequences, and responses, (2009)

Economists on “One World Bank” theory

Economists have already warned that due to the European central bank’s low financing, other sick banks could shut down their operations if a turnaround id not seen in the immediate future. If the crisis is resolved well then it would be like a blessing for the European central bank and if the crisis does get worse then the commercial banks are at great risk of losing their livelihood Ewang (February 12, 2012).

Despite the above-mentioned facts, there is a high risk of global financial crisis due to the fact that European banks are in great financial trouble. This situation can eventually impact all the major commercial and business activities across the region if not responded promptly to the arising critical situation. International institutions opine that this critical situation in Europe could either recover the global economic strain or can lead to a complete collapse in the European region, Jones, I.D., Tally (April 18, 2012)

As far as having a single currency across the world is concerned, It can be said that it does have its own advantages like exchange transaction costs can be brought to zero however there are disadvantages to this concept of having a single global currency like failure of incorporation of larger economies which eventually can lead to competition between the economies due to the fact that countries could hesitate to sacrifice their respective independent monetary policies. Even having a single banking system can lead to a situation Europe is facing since 2009 Stoa (2008).

Conclusion

Therefore to put it in a nutshell, it can be said that whatever consequences the European Union has gone through having a common currency, the entire world will be subject to the same dangers in terms of the economic point of view having a single currency or with a One World Bank. Having a single world currency or having a one World Bank is not a bad idea however there are severe disadvantages which certainly overweigh the benefits of having a single currency or a one World Banking system. European Union is an example of this idea. When leading banks of the European Union go bankrupt then the situations become grim as smaller financial institutions find no way to curb the crisis like in Europe eventually depending on the already suffering bigger financial institutions. So the above article emphasizes on the fact that one World Bank will not be a better idea and so does a single currency can have critical financial problems like the euro.

References-

European Dept Crisis., April 17 2012.,New York Times., Retrieved on April 26, 2012, from topics.nytimes.com/top/reference/timestopics/subjects/e/European_sovereign_debt_crisis/index.html

Davidson A., Goldstein j., Kenney C., November 30, 2011.,  Europe’s financial crisis, in plain English., November 11, 2011., New York Times., Retrieved on April 28, 2012 from nytimes.com/2011/12/04/magazine/adamidavidson-european-finance.html?_r=1&pagewanted=all

Economic crisis in Europe: Causes, consequences and responses., 7/2009, retrieved on April 26, 2012, from http://ec.europa.eu/economy_finance/publications/publication15887_en.pdf

Ewang J., (February 12, 2012). Economists Warn of Long Term Perils In Rescue of Europe’s Banks. The New York Times., Retrieved on April 28, 2012., from nytimes.com/2012/02/13/business/global/low-interest-loans-to-european-banks-prompt-concern.html

Jones, I.D., Tally (April 18, 2012)., IMF: Europe Banks Risks New Global Financial Crisis As Balance Sheets Shrink., Wall Street Journal., Retrieved on April 26, 2012,                            from online.wsj.com/article/BT-CO-20120418-708033.html

The Single Global Currency: A Developing World Perspective, April 2011. Retrieved on April 27, 2012. From www.singleglobalcurrency.org/…/RyanStoaThesiscombined.doc

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