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Introduction What is single currency? Single currency is the type of money used in several countries. It represents all the countries involved in creating it. Today the name of single currency is Euro, which will replace national currencies in next year. But Euro is not the first time people wanted and created Euro. Whenever there was possibility for international trade to expand there was need for creating single currency.
In the future, in some ten years to be exact, Euro should be merged with dollar to create the single currency for the whole world, Eurodollar. I will be talking about the history of single currencies, like when, where, why etc. Then I will continue talking about Euro, why it was created, where and when. Then I will say few words about the current situation in the UN and finally I will say something about Euro in UK because UK is the special case in UN. A History of Single Currencies As I already said, whenever economic and political stability have enabled international trade to expand, attempts have been made to introduce a universal currency that meets the demand of trade. This means that when the political and economic situation in several countries was good and allowed expanding of the trade they tried to establish single currency in order to make trade easier.
For example, the Roman Empire, the Chinese Empire and the British Empire all established a single currencies in the countries over which they ruled. The reasons for establishment single currencies are political and economic. But the history says that political reasons are the main reasons for creating single currencies. The first attempts to create an international currency for Europe occurred in 1800.
The German Zollverein was introduced in 1834 and the German currencies were consolidated into the mark in 1873. The Latin Monetary Union was established in 1865, and lasted until 1914, with France, Belgium, Switzerland and Italy as charter members. Each country agreed to mint coins to a single standard that would be accepted as legal tender by government offices in any of the member countries. Euro The Euro is the name for single currency of the European Union. Euro is the ECU, European Currency Unit, renamed. The ECU is currently the basis for the European Monetary System.
ECU is pronounced Ek-you. The ECU is defined in terms of pieces of European currencies, making it a composite, or basket, currency in origination. Since its creation it has become a currency of denomination for eurobond's and bank certificates of deposit. (J. Online Grade) The biggest part of all European currencies, which took part in creating Euro, has German mark. Their part in the currency basket is around 30 per cent of the Euro. The move towards creating single currency began with the Dealers report of 1988.
This report was the basis for the Maastricht Treaty, which was signed in 1992. This treaty introduced Euro and set date for the move towards single currency by January 1, 1999. By the next year, January 1, 2002, Euro should replace all the currencies in Europe. However, among the Members States there are few countries that are strongly against Euro, United Kingdom and Denmark. There are several reasons why single currency is good for economy. The single currency will increase that transparency of prices.
One in Europe will not have to compare prices in ten or 12 different currencies. Also people in Europe will not have to convert money from one currency to another and this will reduce the costs of transaction. The single currency will enable individuals and companies to make economic transactions more efficiently. The single currency will eliminate exchange rate risks among the sharing countries. Although there are many more economic benefits of a single currency, Euro, there are also economic costs. Most of the economic costs of a single currency are macroeconomic and political.
A single currency forces a country to relinquish an independent monetary policy. When Euro comes to force then the countrys monetary policy will be determined by the supranational central bank and not by its own central bank. The next costs are costs of economic differentiation. For example, one cannot decrease interest rates in countries, which are in recession, and cannot increase rates in countries, which are booming.
The current situation The current situation with euro in Europe is that all the currencies will be replaced from the beginning of the next year. During the three-year transition period, 1999 - 2002, European companies will convert their accounts to euros. Then, in 2002, Euro notes and coins will be circulated in different countries. There will be, of course, much bickering over the use of national symbols (should the queens head be conjoined with the body of a bird? ), or whether coin sizes will fit into national telephones and vending machines. Unfortunately, we do not know whether all of these things will happen, even though we are so close to scheduled date. In some countries, in Luxembourg, these changes can happen with no problem, but in some like, UK and Denmark, UN is confronting with strong political opposition.
In some ten years, as I mentioned before, Euro should be merged with dollar to make Eurodollar. This would make one currency for almost the whole world. The impact of the Eurodollar on the world economy would be the same as Euros impact on Europe. In the end, currency crises can lead recessions and political change. Therefore, it is not very difficult to imagine the massive savings that could and will occur by the introduction of a universal currency.
Euro and the UK United Kingdom entered European union in 1973. UK is the fifth economic country in the world. Together with Denmark, UK is against the Euro. They want to be part of Europe but they do not want euro. They would like to keep the pound and there are several campaigns against Euro, like Keep The Pound Campaign and the famous NO Campaign.
Around 70 per cent of the people in UK said NO to the question should they change Pound to Euro. They have confidence in the ability of Britain to prosper with her own currency. "Five Reasons to Keep the Pound" In a single currency there will only be one interest rate. But because our economy is out of step with the rest of Europe, the single interest rate will nearly always be wrong for us. That will make our economy more volatile with unsustainable booms and deeper recessions. Most people in Europe think the single currency will lead to a European super state.
The EU Commission President, Romano Prodi, has described monetary union and political union as "two sides of the same coin." That may be what people in Europe want. But it is not what the British people want. If we keep the Pound, Britain can keep its independence. There is a great danger that joining the single currency will mean handing over our power to set our own taxes.
This could mean British taxes rising by a sixth, to the levels in the rest of Europe. With the fifth largest economy in the world, Britain can make a success of its own currency, if we want. No one suggests that much smaller economies like Australia, Canada or Switzerland have to scrap their currencies to survive. It would cost billions of Pounds for all British businesses to change their systems to the Euro.
But only a small proportion of them would benefit from reduced costs of trade with Europe. (William Hague, Labor Party) In September last year, new campaign in UK was formed by the Business for Sterling and New Europe. The campaign was called The NO Campaign. This is a non-party political campaign that represents two-thirds of the British public and business that believes Britain should remain a member of the European Union and keep the pound. (New Europe, The NO Campaign) The name of the campaign says it all. Britons do not want to change their money, the Pound, into Euro but they would like to stay in Europe. We still do not know whether UN will accept this or no.
People in UK believe that if the Pound is replaced by Euro, it will cause higher unemployment, higher taxes, lower standards of living. Britain meets four out of five criteria, just like U. S. A. , set out in the Maastricht Treaty. It meets the inflation, interest rate, budget deficit and public debt criteria. They do not meet the exchange rate criteria.
Britain had to conduct several tests to see whether they are ready for the Euro or not. One of them is flexibility, especially flexibility of labor market and the tax system. As it is stated in the Treaty, Treaty provides the full freedom of movement of both capital and labor. The No Campaign did some research and found out how the British economy would respond to joining EMU, with the help of computer modeling. This model is called Liverpool's model and it shows the following: Britain would be far more vulnerable to a return to boom and bust if it joined Euro rather than staying outside and keeping the pound and control over its own independent economic policy Joining EMU would increase the variability of the economy the boom and the bust factor by 75 per cent.
The instability of growth or output would be nearly a third higher inside Euro. Real interest rates would be more than four times more variable inside EMU. (New Europe, The NO Campaign) Next test is investment. Nowadays the business investment as a share of GDP is very high in UK, higher than ever in the past 40 years. It is also higher than in France, US or Germany. FDI, Foreign Direct investment, is at record level.
The stock of the inward investment rose by 36 per sent in 2000. The main reason for this is that the strong investment depends on the economic stability. Joining Euro, UK will lose a great number of direct investors because Euro will create higher degree of economic variability. The effect on jobs and British prosperity is the next test Britain had to do. Joining Euro does not mean lasting increase in jobs. On contrary, the rate of unemployment in Eurozone is much higher than in UK.
Since 1999, UK has created around 850, 000 jobs, which takes UK unemployment to the lowest level since 1975. Conclusion Creating Euro, European single currency, is the first step towards fulfilling the idea that exists long time ago, ONE MARKET ONE MONEY. Also it is one of many steps in creating the perfect world and economy, if such thing exists. Ever since man created money there is a need for creating single currency.
Today people whole around the Europe are hoping that Euro will survive and will be, when emerged with dollar, be the worlds single currency. It would not matter where you were on the planet you would not have to convert money in appropriate currency. Personally I do not believe in Euro, like most people do, but I hope everything will turn out good.
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