Creation of a single currency(Euro) for some European Union members has some advantage and disadvantage. Discuss some of its advantage and disadvantage.

Creation of a single currency(Euro) for some European Union members has some advantage and disadvantage.Discuss some of its advantage and disadvantage.

Brief introduction of single currency (Euro) in European Union(EU)Purpose of using common currency among the European Union (EU) members is to unify the citizens of EUThe main idea of single currency is to facilitate the trade between companies and citizens among the EUEU members need to meet certain criteria in order to eligible for membership in the Euro.Budget deficit less than 3% of GDPNational debt less than 60% of GDPat least two year without devaluation within the ERM Low inflation

Brief introduction of single currency (Euro) in European Union(EU)The Euro was introduced in January 1999By 1st of July, 1998, 11 member-states had met the criteria At the year of 1999, the currency launched as an accounting unit, then in 2002 as with paper currency and coins Nowadays, it is the official currency for 19 out of 28 members The currency was managed by European Central Bank and European System of Central Banks

Figure 1: Type of Euro banknote in 2002European Central Bank(2002). The Euro, Our Money. Retrieved from European Central Bank website: https://www.ecb.europa.eu/pub/pdf/other/eurobren.pdf Advantage of single currency (Euro)The euro would lower the cost of cross-border transactionBy eliminating exchange rate risk and fluctuation risksSingle currency could help to reduce the problem of exchange volatility between EU membersBy centralized the currency help the EU member only left the fluctuation risk with dollar, Yen, and any other important currencyEliminating the fluctuation risk among the members in term of import and export.

Advantage of single currency (Euro)enabling a single and more efficient marketImprove the investment and tradePrice transparency Help to manage inflation in those countriesAvoid unhealthy competitive devaluations as one country to devaluate its currency to improve the exportAvoid the speculation and resulted more efficient market Increase the trade across borders

Advantage of single currency (Euro)Simplified billing system among the countriesEasier to expanding the business marketBusiness can expand more easily into neighboring countries in term of centralize accounting system by using single currencyLower the interest rate

Disadvantage of single currency (Euro)Two potential problem was emphasized by scholar, one is economic and one politicalProblem in Economic A single interest rate might not suitable for each member as the countries condition was differA single interest rate could no match the requirement for all member states which results the business cycle tended not to be synchronized Problem in PoliticalThe euro was seen as infringing on national sovereigntyThe criteria for eligible or Euro membership become a challenge to country Disadvantage of single currency (Euro)At the beginning of Euro, the cost of transitioning 12 countries' currency to single currencyA billion of dollar was spent in new currency, accounting system, software and so onECB difficult to standardize the monetary policy as overall condition among the members have to take into considerationLate respond to the market demand and resulting difficulty to stimulate economic activity Effect of ECBs monetary policy result different outcome among the members

Disadvantage of single currency (Euro)Economic shock is another risk that comes along with the introduction of a single currency especially in Macroeconomic such as:There is no way for EU members to adjust the interest rate, exchange rate, and The EU member is impossible to stimulate the investment activities and consumer purchase by adjust interest rate individually The EU member was unable to adjust exchange rate to devaluate its currency in economic downturn in order to push the exportGovernments are restricted to keeping their budget deficits in order to fulfill requirement of membershipBecause of the criteria for using Euro results the limitation of government spending especially of social welfare and unemployment, limits their effectiveness in pulling the country out of a recession.In times of economic difficulty, government spending increases in order to provide welfare for the increasing of unemployment rate. Government put back the money to encourage spending which helps bring the country out of its recessionReference Obringer,L.A. (2002). How the Euro works?. How Stuff Work. Retrieved from: http://money.howstuffworks.com/euro.htmPortone, D. (2005). The costs and benefits of the Euro In European Monetary Union Countries. Prieiga per internet. Retrieved from: http://www. unc. edu/~ salemi/Econ006/Portone_2004. pdfFeldstein, M. (2012). The failure of the euro.Foreign Affairs,91(1), 105-116.European Central Bank(2002). The Euro, Our Money. Retrieved from https://www.ecb.europa.eu/pub/pdf/other/eurobren.pdf