Disadvantages and Advantages of a Single Currency

1679 WordsNov 1, 20127 Pages
Discuss the arguments for and against the UK joining the European single currency. The European single currency is a common legal tender currently used by 17 of the 27 member states of the Euro zone. This single currency is known as the Euro which was first introduced as an electronic currency on 1st January 1999, where it could only be used for cashless payments. Then later on in 2002, the euro became a physical state, notes and coins. The intention of creating a single European currency was in order to make it easier to trade across the EU, excluding the problems of exchange rates. However, there are two of the original member states that still to this day do not use the Euro; Denmark and the United Kingdom. They both agreed an…show more content…
But also at the time of this choice, the British economy was doing well and outperforming the other euro zone states such as Germany who was having problems. Therefore if the UK did go ahead with the decision of joining then they would no longer be out-performing these countries because all the currencies would be the same, ‘euro.’ In addition, for the UK there would be a loss of independent monetary policy. What I mean by this is that the UK would not be able to set its own interest rates and therefore would not have the ability to react to shocks within the British market. Once the UK is indulged into the single European currency this would mean that anything to do with the monetary policy is set by the European central bank (ECB). This would be a bad thing because according to (European commission, 2011) the ECB looks at what is best for the whole Euro economy and not what is just best for the UK. For example, if the UK was to join in 2007, then interest rate would fall from 5.25% to the ECB rate of 2.25% which could have then lead to future inflationary pressures within the UK. However, you should also take into thought that if the UK does adopt this new single currency then there would be a painful loss of sovereignty over interest rates. When this decision first came into acknowledgement, the treasury had outlined five economic
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