Title: Single Currency: Pros a& Cons
Headings: Advantages and Disadvantages of a Single Currency.
Advantages and Disadvantages of a Single Currency.
Content: At the end of 2011, 17 countries in EU used Euro as legal tender. This credibility is enhanced by the stability pact of December 1996 that commits participating nations to fiscal responsibilities like limiting budget deficit and debt ratio to levels that are acceptable by the pact. The stability of Euro is also protected by the explicit stability-oriented monetary policy of European System of Central Banks (ESCB) that controls the value of Euro. Prevent competitive devaluation by nation states. A single currency would prevent the need for nation states in EU to devalue their national currencies to achieve competitive edge over other nation states. When one nation devalues its currency it actually force others to devalue their respective currencies as not to lose to unfair competition from the first nation that devalues its currency. This kind of devaluation is unhealty to the economic health of all nation states in EU. In the European Monetary System (EMS), currencies of members are fixed within a band of 2.25 % of the central parity. This system is still in operation and the central parity is now the Euro. Devaluation by any member within this system would encourage speculators to attack the currency and/or other currencies within the system because the credibility of EMS depends on maintainig the band.