Advantages and disadvantages of a single currency in Europe

There are many different advantages of having a single currency across the members of European Union. They could be finanial, economical, political or customer oriented. From a average customers' point of view, the illimination of different currencies and introduction of Euro helps travelers and business to overcome the issue with exchange rate. Now there is no requirement to change multiple currencies when traveling thus people not loosing money on exchange rates. Travelers will not lose money when exchange rates move in against their native currency. Moreover, it is much simpler to make future projections when preparing budget, as there is no freat of currency flactuations.

However, from bureau de change point of view it means that introduction of single currency put an end of their business of offering currency exchange services to travelers and businesses. As a result majority of exchange companies had to reduce the number of stuff or even worse, close down some if its offices.

Moreover, single currency benefit trade between member states. In long term adoption of Euro gives a greater certainty regarding future costs and revenues thus reduce the risks and encourage companies to trade more agressively and on a larger scale. Such situation will lead to a greater competition which in turn will result in lower prices. It clearly seen as a negative point for the business however consumers will benefit from lower prices and greater choice from rage of competitors.

There are many advantages of the euro adoption by the countries in the Eurozone, despite that disadvantages also exist, and the most well known are the following: obliteration of the existing exchange rate fluctuations between a number of currencies and reduction of transaction costs (no other currency is necessary when conducting business or travelling in the Eurozone). The single European currency also stimulates trade activities and free movement of capital, goods and people but these effects should be subject to a profound academic research.

Previously, the national economies of the European Union member states sometimes suffered from fluctuations of the local currencies within a common market. The euro exchange rate does not offer shelter from currency fluctuations in general but provides predictability and unifies the means of exchange in all countries in the Eurozone. Following the adoption of the euro, 12 countries in the EU witnessed their national currency disappear with more new member states entering the Eurozone gradually and other waiting at the door.

Thus, all current members of the Eurozone take advantage of the single currency but they share the same disadvantages as well. When the U.S. Federal Reserve releases data showing increasing unemployment rate, falling number of new mortgages and growing number of businesses going bankrupt the most immediate consequence will be a falling exchange rate of the U.S. dollar. The same applies to the single European currency, but in addition to the data released by the European Central Bank, Forex traders around the globe take decisions whether to buy or not to buy euro depending on data about the national economies of the countries participating in the Eurozone. Hence, negative signals reported by the French or German economy could result in depreciation of the euro exchange rate as a whole despite that the economies of all other Eurozone member states are running smoothly.

From the average customers' point of view, the single euro exchange rate is a good thing, though. There is no need to exchange your money into a new currency every time you cross a border within the Eurozone. The euro facilitates also the currency transfers within and outside the EU and reduces the costs of such transfers. As a rule, the risks of a currency collapse cannot be eliminated but the safety provided by the euro is good enough to reduce such risks to a minimum and to maintain largely predictable euro exchange rate.

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Date: 2014-12-21; view: 1525