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Three-Currency World Now Seems Plausible With the successful introduction of the euro currency, some economists and politicians are looking to the day when a dollar zone in the Americas and a yen zone in the Far East result in a three-currency world.  By Michael Lindemann Start Date: 1/25/99 It could not have been imagined a few years ago. But then, the nations of Europe decided to pool their economic fortunes behind the unified currency called the euro, officially adopted in eleven nations on January 1, 1999. And then, scant weeks later, the South American nation of Argentina proposed to abandon its own currency, the peso, and adopt the U.S. dollar, an idea that drew wide praise as both politically bold and economically wise. If Argentina follows through, its lead might well be followed by other nations of Latin America, perhaps resulting in a "dollar zone" to rival the "euro zone." Sensing the inevitable, some analysts say the next development would be a "yen zone" in the Far East. Within a decade or two, if these analysts are correct, the majority of nations on earth might peg their economies to one of just three big currencies. Argentina's initiative was spurred in part by growing economic chaos in Brazil, where the real was recently allowed to float against other world currencies and plunged 30 percent in value in the two weeks ending January 22. Brazil had attempted to shore up the real's value by selling off some $40 billion in hard currency reserves over the last six months, but to little avail. With the world's eighth largest economy, Brazil's woes sent shock waves through both U.S. and European markets, where stocks plunged at week's end. And, as Brazil's currency value plummets, money managers in Argentina feared that their own peso would soon be forced to follow. Thus came Argentine president Carlos Menem's radical idea to abandon the peso in favor of the dollar. As it happens, the timing could hardly be better for Menem, analysts say. His Peronist party is trailing badly in national polls as Argentina heads into a presidential election later this year. Though the constitution forbids Menem himself from seeking a third consecutive term, his Peronist successor candidate could gain greatly from the perception that Menem has found a way to save Argentina's economy from a Brazil-style meltdown. But the idea of a "dollar zone" is a long way from being realized, and some analysts think it will be much harder to accomplish than the all-Europe currency. Inside Argentina, opposition is led by former President Raul Alfonsin, who fears that adoption of the dollar would reduce Argentina to an "appendage of the United States, like Puerto Rico." Doubts are expressed outside Argentina as well. "I don't think every country [in Latin America] has the choice of going to the dollar as a currency," says Alberto Alesina of Harvard University. "As a continent-wide process, I don't see it as very likely." But economists also point out that the impediments to adoption of the euro were very large, yet were gradually overcome. If a dollar zone in the Americas is hard to imagine, a yen zone in the Far East may seem radically unlikely. Could nations as inimical to each other as China, Korea, Japan and Vietnam pool their fortunes behind the yen? Conventional wisdom would say no. But the world is moving rapidly into uncharted territory on many fronts. The smart money says stay tuned.
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