Essay on Foreign Exchange and Economics For Business

As of 2012, only seventeen of members of the European Union have decided to use Euros as their currency. In order for the members that adopted the Euro as their currency to successfully help their economic problems, the Eurozone members had to follow strict instructions put into place the European Union. The strict policies included strict control over inflation, government debt, and long-term interest rates (Mckee 525). The union put these strict policies into place to give the union the tools that it needed to take in order to help fix the economic crisis in each country participating in the Eurozone. Without the full cooperation of each country, it could cause the plans to fix the economic crisis within each country to fail because of the different interests by each individual country.

The euro is not the currency of all EU Member States. Two countries (Denmark and the United Kingdom) have ‘opt-out’ sections in the Treaty excusing them from involvement, while the rest (numerous of the more recently agreed EU members plus Sweden) have yet to meet the situations for approving the single currency.

country is not an indebted country, say like the US. So, the currency has tended to

The EU sought to simplify trade within European neighbors and to replace national currencies with a single shared currency that could compete with the dollar on the global stage. The members of the newly-formed European Union agreed to a fixed currency conversion rate when the Euro was adopted (Scheller). Initially, the EU only had 11 members, but membership has since grown to 25 member nations. These 25 member countries operate within what is called the Eurozone, over which the European Central Bank sets economic policy

4) Maintain a multilateral system of payments that eliminates foreign exchange restrictions. Countries are thus free to trade with each other without worrying about the effects of interest rates and currency depreciation on their

The Maastricht criteria for convergences is a criteria for which European Union member states are required to meet to enter the third stage of the European Monetary Union (EMU) and adopt the Euro as their currency (Viskovic, 2012). The criteria includes five rules which act as instruments of macroeconomic stabilisation (Bukowski, 2006), which were implemented to avoid destabilising the EMU by the premature admission of countries whose underlying economic performance was not yet compatible with permanently fixed exchange rates. These criteria have been used as conditions since the implementation of the euro in 1999, however, even before the recent euro crisis there has been speculation about the effectiveness of this criteria.

Ever since 1999, EU has decided to adopt the use of single currency in their community. The decision to adopt a single currency shows a concrete proof

The need to have a solitary currency for Europe has come from the following six major factors. Firstly, the Post World War II, European Union (EU) was established in the year 1957, to have a trade market that is common for all its constituent nations. This soon gave way to the need of having a joint currency among EU nations, as it was realized that individual currencies caused too much fluctuation risks and sustain exchange costs (European Central Bank, 2010). Secondly, the EU needed to have a more powerful presence in the world economy, and an established common stable front in terms of currency, was the pathway to the right direction. Thirdly, the markets of all the European countries needed to get a joint and steady platform for

These examples illustrate the point that in all countries, multiple price measures exist and have a useful role. At the same time, the presence of multiple measures does not undermine the conduct of macroeconomic policy.

In 1957 the European Economic Community took birth. In 1979 was the first experiment with a currency union by linking European currencies which led to the European monetary system, the precursor of the euro.

In 1999 seventeen countries in the European Union adopted the Euro forming a Euro Area. With the adoption of the Euro these seventeen countries discontinued their old currencies and monetary policies. Monetary Policies

The majority of countries adopted the euro after joining the European Union. However, Czech Republic has continued to use their currency, the Czech koruna or Czech crown, since 1993 (Taus-Bolstad 2003, p.68). Both the head of the state and head of government oppose adopting the euro. There have been discussions regarding the date of euro adoption in Czech Republic. Every date previously proposed has passed and the integration of the euro in Czech society has been put on hold.

Bulgaria’s HICP inflation levels are well within the range of the eurozone average, and its budget is in surplus at 1.6 per cent, compared to the limit of 3% of deficit stipulated by the Maastricht criteria. Moreover, its debt ratio is at 29%, which is excellent when compared to the 60% peg given by the Euro requirements. The country’s bonds are showing interest rates within the 4% required as well, and most importantly perhaps, as much as Bulgaria has not yet triggered the ERM II (exchange-rate mechanism) process, it has pegged its national currency, the lev, for almost 20 years. The lev was first pegged in 1997 to the German Mark, and later in 1999 to the Euro until now, with a constant rate of 0.511494. Given such compliance, it comes to little surprise that Junker stated: “I have to say bully that Bulgaria is ready [to join the euro group]. And if Bulgaria is applying I support this heartily.”

A chronological sequence of events was pre-announced for the changeover to the euro. This scenario was mainly based on detailed proposals elaborated by the EMI

It was created to establish monetary union within the European Union under the provisions that were set out in the 1992 Maastricht Treaty. This Treaty outlined that member states using the euro must follow strict guidelines such as having a debt less than sixty percent of GDP