What are the benefits and costs of using a common currency for Germany, Greece, & the...

What are the benefits and costs of using a common currency for Germany, Greece, & the EU

Expert Solution

Germany and Greece are the part of EU, and there are many benefits associated with the use of a common currency. The first benefit will be the elimination of transaction cost as only one currency will be operational in EU and associated countries. It will prevent the cost associated with the exchange of one currency with the another currencies. The second benefit is the price stability in the countries and union due to one currency in different nations. The third benefit is the stronger integration of the financial market and channelization of the funds will be more easier. It will facilitate the development of the different countries and the European Union. The fourth benefit is the recognition of common currency as a global currency of international trade.

Though there are some costs also. The first cost is the depreciation of currency when economy of one country, suffers and its impact are shown upon the currency. As a result, stronger economies also suffer. The second cost is transition cost when different countries such as Greece and Germany relinquishes their currency and adopt a new and common currency. In doing so, the cost of transition occurs. Besides, different policies that are specific to the country, also affect the currency and it makes impact across the countries. It is also considered as a cost.

Rahul Sunny answered 2 years ago

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