Question

One of the discussion within MERCOSUR member countries is to adopt a single common currency to become a common market much like the European Union. What issues should they consider before they accept or reject a common currency? Should associate countries be included in this endeavor or only include current member countries? Why or why not?

Answer 1

Economic conditions of each coutry is different. The exchange values of the currency of a country is based on the factors and goals of that country. The lifestyle, living standards, health conditions, income distributions and other factors help in setting the exchange value of a currency.

When a single currency is set in whole international market, it might be beneficial for some of the countries with strong position in world trade but might prove to be disadvantageous to the countries whose hold over the international market is not that strong. It will not be fair to those countries as they are still on their path to get a hold over economic conditions of the country.

A single currency would mean that the individual governments of those countries will not have any autonomous powers to be able to change their existing policies and make new ones. Their hold over their finances will then be transferred to the central authority that will be controlling all the countries under MERCOSUR.

Holding a single currency could even brew up economic crisis in many countries. Strong economies will be having benefits due to their hold over the world trade. But the other coutries who might be benefiting due to the differences in the currency exchange rates would now be renderred more vulnerable to the hands of strong economies.

Though, single currency would solve the problem of forex exchanges but this would mean loss to those countries who are better off due to these forex rates differences.

The benefits that this might provide is that there will be freer trade in the world and better utilisation of money. But this benefit could be too low to be taken into consideration.

So, if MERCOSUR implements the single common currency plan, it might like to try by implementing within the members first before adding more countries to the system.

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