Currency Unions - EU
Currency Union = Countries agree to merge old currencies into single new one.
Euro was launched in 1999
Benefits of Euro:
1) Trade Creation
No transaction costs - of switching between currencies when trading
Reduced risk - no danger of profit margin of exchnage rate fluctations
2) Improved Eu single Market function more efficiently
Nations can beter expouilt their comparative advantage
3) Price TRansparency
4) Dispciline ON Governments
Cons of Euro:
1) Trade Diversion
2) Loss of Control over Monetray Policy
Single currency = single exchnage rate.
Limits ability of governments to respond to economic shocks.
3) Fiscal Policy Constranits
4) Lack of Competetiveness
5) Problems if Convergence is not achieved
6) Danger of Assymetric Shocks
7) Eurozone not optimal currency area
A currency union is a type of economic and monetary union in which multiple countries
agree to use a single currency, typically managed by a central authority. This can
include a central bank that sets monetary policy and manages the currency, as well as a
common exchange rate system. Currency unions can have a number of benefits for the
Currency Union = Countries agree to merge old currencies into single new one.
Euro was launched in 1999
Benefits of Euro:
1) Trade Creation
No transaction costs - of switching between currencies when trading
Reduced risk - no danger of profit margin of exchnage rate fluctations
2) Improved Eu single Market function more efficiently
Nations can beter expouilt their comparative advantage
3) Price TRansparency
4) Dispciline ON Governments
Cons of Euro:
1) Trade Diversion
2) Loss of Control over Monetray Policy
Single currency = single exchnage rate.
Limits ability of governments to respond to economic shocks.
3) Fiscal Policy Constranits
4) Lack of Competetiveness
5) Problems if Convergence is not achieved
6) Danger of Assymetric Shocks
7) Eurozone not optimal currency area
A currency union is a type of economic and monetary union in which multiple countries
agree to use a single currency, typically managed by a central authority. This can
include a central bank that sets monetary policy and manages the currency, as well as a
common exchange rate system. Currency unions can have a number of benefits for the
