The world could have just 5 or 6 currencies by 2040, Brazil’s economy minister says

The world could have just 5 or 6 currencies by 2040, Brazil’s economy minister says

There are more than 100 recognized currencies in the world, but that could fall to five or six in the next 20 years, the Brazilian economy minister said at the World Economic Forum (WEF) Thursday. As CNBC reports, European countries introduced 20 years ago a common currency, allowing, for example, people from France to travel to Germany without the need to change their cash. This could be replicated in other parts of the world in the future, provided they align themselves politically or economically, Paulo Guedes, economy minister of Brazil, said at a panel.

“If you consider the political dimension and the economic dimension, we would have five, six currencies 20 years, 30 years from now,” he said.

At the moment, the U.S. dollar is seen as a safe currency asset — meaning that its value grows at times of crisis. Various countries have chosen to peg their currencies to the U.S. dollar for stability and trade reasons. However, in times of instability for the U.S. dollar, the peg could hurt those countries. Developing common currencies across different countries could help these economies reducing their dependence on the U.S. dollar.

“There would be one continental currency, the euro, another ‘continental currency’ the dollar-dominance-area and China would have their currency – there are 200 million oversees Chinese, these people live in the Philippines, they live in Malaysia and they trade with China, they go back and forth all the time and they are trading renminbi’s and they will not keep liquidating their grants and debts using dollars,” Guedes said supporting his idea of a fewer yet stronger currencies around the world.

However, speaking at the same panel, the IMF’s chief economist Gita Gopinath said this was a scenario of “pretty low probability.”

“Given what we know now and unless there are major wars that take place or serious walls that get built everywhere, assuming that doesn’t happen, I think it is a pretty low probability scenario that would happen,” Gopinath said.

She added that in order for other currencies to seriously challenge the dominance of the U.S. dollar, they need strong institutions. “There cannot be a tiny possibility that you would not be a zone the way it is now in the future,” she said.

This is often the criticism against the euro, currently used in 19 countries. The euro zone has yet to develop certain mechanisms that will reassure investors and ordinary citizens that when the next economic shock hits, its structure will not collapse.

“I can see people very easily switching from paying in cash to paying using a digital payment platform. But whether they will as easily switch from the dollar to the renminbi that is a completely different question,” Gopinath said at the WEF panel.