Questions that will be covered.
• Six reasons for The implementations of a single currency
such as the euro.
• One Disadvantage of a Single Currency Area.
What we will Outline
• 1- Trade
• 2- Price transparency
• 3- Competition
• 4- Elimination of transaction cost
• 5- European central bank
• 6- Stability of currency
• Conclusion- One disadvantage of SCA
Introduction to the Euro
The Euro is the official single currency within
the European union.
Currently used by 17 of the 28 members of the
First Introduced into Ireland at the beginning of
2002 replacing the Irish pound
Used as a daily currency by more then 334
The Eurozone is also known as the Euroland.
Its the area in which the 17 member countries
have undertaken the euro as their main
Counties within the Euroland adopted a strict
fiscal policy around government spending and
To join the Euroland counties must match
certain criteria such as the counties budget
defect being less then 3% of the counties GDP
• With a Single Currency within Europe, there is a
elimination of currency risk.
• With Euro countries there is a larger area to trade
• Theorists argue that it brings considerable economic trade
through the wiping out of exchange rate fluctuation.
• With a Single Currency within the E.U consumers will
easily be able to compare prices from country to country.
• EU firms and households often find it difficult to accurately
compare the prices of goods, services and resources
across the EU because of the distorting effects of
exchange rate differences.
• The single currency would increase trade because of this.
• If we look out in the world today we can see strong
currencies such as the Japanese Yen and The American
• America and Japan both have strong economies and
have millions of inhabitants. A newly found monetary
union and a new currency in Europe could be a rival to
the these currencies.
• No competitive devaluations which encourages trading.
• All countries have an equal playing field and can’t play
with their currencies to influence trade.
Elimination Of Transaction Costs
• This is the most visible benefit.
• The economic agents will not have to suffer a cost when
they exchange their currency for another European one.
• It is very difficult to know the exact savings in transaction
costs. The European Commission has estimated the
gains to be between 13 and 20 billion euro per year.
• (De Grauwe, P. The Economics of Monetary
Integration, Oxford: Oxford University Press, 1992.)
ECB - European Central Bank
• The ECB is the central bank for Europe's single
currency, the euro.
The ECB’s main task is to maintain the euro's purchasing
power and thus price stability in the euro area.
Keeps the financial system stable – by making sure
financial markets and institutions are properly supervised.
ECB sets key interest rates for the Eurozone and
controls the money supply.
Europa.eu - http://europa.eu/about-eu/institutionsbodies/ecb/index_en.htm
• The objective of price stability refers to the general level
of prices in the economy.
• Price stability is put in place to avoid inflation and
deflation from happening.
• The ECB’s main aim is to keep inflation below but close to
One Disadvantage of The Euro as a
• Fifteen separate countries with widely differing economic
performances and different languages have never before
attempted to form a monetary union.
• The major cost is that a country joining a currency union
gives up both its freedom to set its own monetary
policy, and the possibility of macroeconomic adjustment
through movements in the external value of its currency.