Individual Project 1: Monetary Unions



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Individual Project 1: Monetary Unions

Introduction

Economic integration has been continued as the economies of the world are becoming more globalized. Passing a number of economic integration stages, European Union has reached fifth stage of economic and monetary union in the year 1999 that is currently operating as a major monetary union of approximately 20 monetary unions in the world and is given the name of Economic Monetary Union (EMU). The importance of Euro is to the extent that it has been discussed as the next international currency after United States dollar and will be sharing an international position with number of other currencies. Expansion in Europe thus requires a careful understanding of the monetary unions operating within the boundaries. This report is in the form of an essay that is prepared with an objective to highlight the monetary unions in general including a number of important aspects that might prove to be of great value within the expansion process.

Discussion

The historical trend in the nations reflects that they use to have their own currencies. But with the changing global circumstances, the countries have decided to adopt foreign currencies as their own.

Advantage and disadvantages relative to a nation maintaining its own currency

A number of advantages can be enjoyed by a nation if it maintains its own currency

A country can make contribution to the economic, political and social circumstances of the country.

When a country has an option of printing its own money, it can directly influence its economy and can monitor the monetary policy or any other type of exchange rate command.

The central bank of the country will lose its power to collect the seignoreage, and the profit from coinage issuance (Investopedia, 2012)

The other side of the picture reflects disadvantages for nations if they maintain their own currency. Two major disadvantages include

The country will have to suffer from the country risk that will lead to an unstable and insecure economic and investment climate.

The country along with its institutions has to suffer from the possible devaluation of the local exchange rate.

Economic transactions around the globe remain difficult if the country maintains its own currency.

EMU and Euro

Euro is the official currency of European Union. Economic and Monetary Union can be considered as an umbrella term that has a set of policies with a focus to converge the economies of all the member of the European Union at three different stages.

History

In the year 1969, the first initiative by the European Commission was taken so as to create an economic and monetary union between the European communities. The meeting was conducted at Hague in 1969 in which a plan was drawn to create stages so as to establish a union by the end of 1970s. In October 1970, Werner plan served as an agreed blue print for the creation of an economic and monetary union. A number of setbacks have been experienced by the project that leads to the failure of the ...