This is a research paper that will examine the potentialities and pitfalls of currency unification. Special attention will be that of Europe.
Economic integration is a major component of change that has swept across different regions in the world. One of the ultimate goals of economic integration is for these regions are to establish a single currency and a main central bank for the participating countries. But the conditions of setting a common currency have been difficult to meet even though trade barriers have diminished.
The EU is the best example of a region that has pursued deep currency unification; through integration and linearization of trade services (Monetary Union German Unity). Some developing countries like Cuba and Libya have also tried currency unification. This has been made possible with internet development and as network virtual currency becomes a reality and a new way of payment. If emerging countries for example stopped using local currencies and adopt global currency, the market values in those countries would rise due to low currency risk. Those countries will then attract new inflows of finance due to reduced risk.
Before countries can join these regional blocks for currency unification, they need to consider advantages and disadvantages of economic consideration.
Advantages of currency unification
1. Single currency will end currency instability in the participating countries.
2. People and indeed investors will not have to change money when travelling through member countries.
3. Businesses will not pay hedging costs to insure themselves from currency fluctuations.
4. Single currency will result in lower interest rates
- Countries with different economic performance and languages will have difficulties forming and running of the regional currency
- Another is loss of national sovereignty
- The one off of introducing a single currency will be significant for these countries.
The problems that are associated with currency unification are usually complex and involve economic, political and institutional considerations (BBC News, Single Currency).
Currency unification is a major component of change that has swept across different regions in the world with goals of economic integration, and for these regions to establish a single currency and a main central bank for the participating countries. But before regions can decide whether to unify their currencies, they should evaluate the advantages and disadvantages of currency unification.