The euro


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A presentation I did for Economics. The Question- Six reasons for the Implementation of a Single Currency. One Disadvantage of a Single Currency Area.

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The euro

  1. 1. THE EURO Dave Martin & Michael Quinn
  2. 2. 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.
  3. 3. 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
  4. 4. 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 european union First Introduced into Ireland at the beginning of 2002 replacing the Irish pound Used as a daily currency by more then 334 million Europeans
  5. 5. The Euroland ● ● ● The Eurozone is also known as the Euroland. Its the area in which the 17 member countries have undertaken the euro as their main currency. Counties within the Euroland adopted a strict fiscal policy around government spending and inflation. To join the Euroland counties must match certain criteria such as the counties budget defect being less then 3% of the counties GDP
  6. 6. Trade • With a Single Currency within Europe, there is a elimination of currency risk. • With Euro countries there is a larger area to trade between. • Theorists argue that it brings considerable economic trade through the wiping out of exchange rate fluctuation.
  7. 7. Price Transparency • 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.
  8. 8. Competition • If we look out in the world today we can see strong currencies such as the Japanese Yen and The American dollar. • 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.
  9. 9. 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.)
  10. 10. 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. -
  11. 11. Price Stability • 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 2% • n.html
  12. 12. One Disadvantage of The Euro as a Single Currency. • 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. • 25081.stm