Question

In: Economics

Why would a country want to join the European Monetary Union and what would be the...

Why would a country want to join the European Monetary Union and what would be the downside of this decision ? Who would be the winners and who would bethe losers ? If you’ve travelled abroad, please share your experience with foreign transactions. Please use economic terms in response.

Solutions

Expert Solution

A country would want to join the European Monetary union for various reasons such as to eliminate transaction cost. Changing to a single currency eliminates the need to change currency. Additionally, joining the EMU may be a way to encourage cross border investment. The elimination of the cost of transaction and the use of a common currency attracts potential investors promoting investment in a country. Lastly, a country may want to join the EMU for exchange stability . Common currency provide a platform to equalize price differences across borders

Downsides

Joining the EMU could have some downsides such as losing sovereignty. The country would have to give up its monetary policy to the European central bank. Additionally, adopting a new currency would be at a great cost for the economy. Introduction of new currency would require educating the people, changing computer soft wares and training staff

The benefits of joining the EMU would be the winners while the downside would be the losers. Although there are some costs of joining the EMU, the benefits are more than the limitations

Explanation:

Having traveled abroad, mainly in Europe, i realized that most countries in Europe have a common currency. Among the countries i have visited including France. Germany and Spain, the euro is the currency that is used. This is very advantageous because there is no need to change currency travelling from these nations.


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