Question

Discuss the costs and benefits that are likely to arise for the EU member countries from the use of a single currency.

Answer 1

Ans. Benefits that are likely to arise for the EU member countries from the use of a single currency are -

• Greater opportunity for business and market expansion

• Greater economic stability/discipline/security

• Improved trade and price stability

• Large integrated economic and financial market

• Higher strength to absorb sudden economic changes and external shocks

• Elimination of the fluctuation and uncertainty of exchange rate

• One kind of protection to smaller countries

• Lower interest rate

• Less risky and cost effective

• Lower transaction cost ( no cost for exchanging currency ) - it encourages higher inward investment and reduction in cost of trading in bonds/equity etc.

• Price transparency - it encourages cross-border trade

• Facilitates easy comparison due to single currency

Costs that are likely to arise for the EU member countries from the use of a single currency are -

• Easier access to loan with low interest rate may increase public debt

• Due to diversity in level of economic development across countries, there is certainly a risk of uneven development

• Sustaining with a single currency in long run is very much challenging

• Single monetary policy ( due to single currency ) may not be suitable for all the member countries

• Sudden economic changes ( external shocks ) may affect the economy adversely.

Hope it will help you. Please provide your valuable feedback through rating. Thank you.