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If each state had its own currency, would that hinder businesses trying to figure out...

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lilylee | Student, College Freshman | (Level 1) Salutatorian

Posted September 4, 2013 at 9:50 PM via web

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If each state had its own currency, would that hinder businesses trying to figure out all the exchange rates?

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pohnpei397 | College Teacher | (Level 3) Distinguished Educator

Posted September 4, 2013 at 10:01 PM (Answer #1)

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If each state had its own currency, it would be much harder for firms to do business.  This would be due, to some extent, to the problem of figuring exchange rates.  However, it would also be due to the extra paperwork and general difficulty caused by having to do all of the currency exchanges.

If every state had its own currency, any interstate trade would require currency exchanges.  This would make things difficult because businesses in each state would have to figure out exchange rates with every other state with which they did business.  However, this is already something that firms have to do when they do business with foreign companies.  There are many foreign countries and firms have to figure out exchange rates with each of them.  Therefore, separate currencies would be a problem, but they would not be the only problem.

Perhaps the bigger problem would be the added hassle for businesses.  As it is today, moving goods from state to state is relatively easy.  Businesses like to have their transactions be easy.  The more steps to the process and the more paperwork, the higher the administrative costs of doing business.  So, if firms had to go through the process of buying currencies every time they traded with another state, it would raise their costs.  This would reduce the amount of economic activity in the country as a whole.

So, the problem of having to figure exchange rates is real, but it is not necessarily the biggest problem that would arise if all states had their own currencies.

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