Single currency in Europe
Arguments for a single currency
Ever since it was established, the European community has had a common market for all its member states. However, despite having had a common market for such a long time, the free movement of people, services and products within the region has been below par mainly because of lack of a single currency in the region. This free movement is hindered since a lot of time has to be consumed for people to change the currency of their country into that of the country they are visiting. In fact, the level of commerce and movement of people and commodities within the sixteen nations forming the euro zone which use the euro as their single currency is much higher as compared to the level of activity outside the Euro zone. This is a very good indicator which shows that lack of a single currency in the region has a great impact on the level of activities within the region thus impacting negatively on the efficiency of the single market (Holmes, 2009).
The presence of a single market without the benefits of a single currency actually fragments the market into small portions. It is therefore not easy for the market to reap the full benefits of economies of scale that would be the case if the single market was actually using a single currency. Going by the year 2008, the whole of the European community generated a gross domestic product that was equivalent to twenty two percent of the overall economic output of the whole world. Despite the massive gross domestic product of the European community, economists argue that the single market remains highly ineffective. If the European community adopts a single currency, its gross domestic product can increase significantly as a result of increased market efficiency. The single market concept of the European community has made it to be the second biggest trade bloc across the world. The European community is actually the greatest importer and exporter of services and goods and also the largest partner of trade to several large economies such as India and China. However, despite the numerous advantages that this community benefits from the single market, lack of a single currency acts like a bottleneck making it difficult for the European community to fully exploit the benefits of a real single market that is not segmented by several currencies (historylearningsite.co.uk, 2009).
It has been established that approximately 36 of the largest corporations in the world in terms of revenue have their head offices within the European community region. However, despite their massive potential of being the worlds largest multinationals, they are greatly inhibited by lack of a single currency in the region. This makes these and several other corporations operating within the EU community to experience massive difficulties in their quest of expanding within the region and also beyond the European Union community. These multinationals while operating in the region are forced to carry out their transactions in different nations as if they are not operating within the European community due to lack of a single currency (Watson, 2009).
Two of the initial main objectives of the economic community of Europe were the customs union and the establishment of a common market between all the member states of this community. Even though a single market was established, it remains greatly unexploited due to the lack of a single currency and therefore if a single currency can be adopted, then the potential of the single market can be unlocked and thus increase its efficiency. While the objective of the single market was to increase the free circulation of capital, goods, services and people within the European community, the union of customs was aimed at involving the use of a similar external tariff to all the services and goods entering the single market. Whereas this was a very noble idea that could have greatly assisted the EU to develop economically and in fact to some extent it has been achieved, lack of a single currency still remains the single greatest impediment to the core objectives of the European Union (Holmes, 2009).
Free capital circulation within the region was mainly intended to allow the movement of various investments such as purchases of property and shares between the member states of the European community. Despite the fact that this objective was achieved, the rate at which those transfers take place, raises a lot of concerns regarding the efficiency of the European market as a single market. Due to lack of a single currency within the region makes it difficult and complicated for capital transfers to be carried out. This in turn affects the level of activities within this region ultimately lowering the rate of economic growth and the gross domestic products of the region. A single currency for the EU is basically the only remaining major handle to stimulate economic activity within the EU and thus all the member states should deem it fit to adopt a single currency within the region so that the market can become truly one and also the process of economic and political integration can take place at a much faster rate and thus enable the region to experience the full benefits of a large trade bloc with a single currency and market (Holmes, 2009).
Just like in the case of free capital circulation within the European community, free movement of people within this region is possible but the efficiency is the one that raises some concerns. While movement of people has greatly been enhanced by good infrastructure and communication networks, the lack of a single currency is hindering this movement. As a result of free movement of people within Europe, it has been possible to lower formalities involved in administration and also recognize the professional qualifications of people in other states. These are great achievements that have been achieved and attaining their full potential demands that a single currency be adopted (historylearningsite.co.uk, 2009).
The adoption of a single currency in Europe would greatly aid in the building of a market that is ideally single that is not only facilitated by the EU laws suggesting that it should be single but also supported by the right logistics. A single currency would greatly enhance the movement of goods and citizens across the borders of the member states. It would also highly facilitate in the elimination of problems associated with exchange rates and at the same time offer price transparency which is currently lacking in the EUs so called single market due to the lack of a single currency. Financial and capital markets are very crucial in the economic development of any nation or region around the world. However, it has not been possible to have a common financial market with the European community due to the lack of a single currency. If this community accepts to adopt a single currency, then it will become possible to have a common financial market, which will greatly facilitate money and other transfers that are vital in economic development of a country or region (Watson, 2009).
Price stability is very important in promoting economic growth and prosperity it is quite difficult to ensure that the prices are stable when different currencies are being used. In order for the European authorities to ensure that prices being charged for various services and goods are relatively stable, they have to adopt a common currency which will be used in all member states. Price stability also ensures that the rates of interest are not only low but stable. This makes the cost of borrowing from financial institutions relatively low and thus affordable, hence making it possible for the people to borrow and invest money from these institutions. Therefore if a single currency is adopted by all the EU members, the level of activity will be stimulated by the stable prices and low rates of interests and thus make the community to prosper economically as opposed to the current situation where the rates of interest and prices are unpredictable since they are highly unstable. Moreover, the adoption of a single currency can greatly assist the economy of the region from effects of shocks resulting from huge amounts of internal commerce within the region. Shielding the economy from such shocks greatly enhances its performance especially in the long run as short term economic depressions are not allowed to have a great impact on the economy (historylearningsite.co.uk, 2009).
Arguments against a single currency for the single European market
The unique European single market as promised in the 1993 accord of economic integration is a concept that is ambiguous. Furthermore, there lacks logical connection between monetary unification and economic integration and hence there is no need for a single currency. There might be grounds for reducing the overall number of currencies being used in Europe, however, majority of these reasons are not dependent on the establishment of a vibrant unique European market (Salirt, n.d.).
It is broadly argued that a single unique market for the European market requires a single currency and hence a single central bank for the community. This particular opinion mirrors the more general notion according to which the integration of European community includes the creation of a super nation based on the existing nations model. The traditional saying of one state, one nation, and one currency is basically translated into terms of Europeans and the likelihood of disconnecting the monetary zone and national zone is perceived to be an absurdity. There is in fact a need to apply to monetary integration a similar reasoning as the one applied in circulation and production of commodities. A single currency for Europe does not necessarily lead to a single market that is cartelised through force or through which the production conditions are harmonised. There is therefore no need to have a single currency for the European community since an integrated market or a common market exists not because of a single currency but due to the presence of choice freedom for the money users and the producer (historylearningsite.co.uk, 2009).
A common market for factors of production and commodities does not necessarily imply single currency creation, since the currencies differentiation is not a major barrier to free movement of financial assets, currencies and goods. In fact, the modern economies are social systems that are complex, which are not based on the creation of a single currency but on individual exchange and specialisation since they are basically monetary economies. For it to play its vital function of value reserve and indirect exchange, money does not have to be a product that is homogeneous all it needs is for it to be a currency that is good. In a similar manner, exchange economy depends on systems of telecommunication and communication and not on a unique telecommunication or communication system. A single currency can only work best in an economy that is centrally planned. The single currency claim for the European community has greatly resulted not from the potential gain of such a system but from the confusion arising from an economy that is centrally regulated and a single market for the whole of European community (Salirt, n.d.).
The common market creation in Europe cannot be used as a means of justifying a single currency for the European community. There might be other grounds for restricting the number of currencies being used in Europe. The main objective of such a monetary arrangement should be to come up with a currency that is good in playing its roles and functions as a purchasing power that is undifferentiated. The monetary units moneyness relies on the ability it has on being exchanged against services and goods with anybody and at any time. Moneys liquidity has two major components dimension of the region in which the currency is circulating and its purchasing power stability. It is clear that it is not necessary to have a single currency in Europe to achieve the objectives of money liquidity (historylearningsite.co.uk, 2009).
More or less, we know the meaning of a currency that is non inflationary, what is not known is the monetary zones optimal dimension, which can largely be obtained from experience. Largely, it is quite evident that there are gains that may result from increased dimension of the monetary region. However, for these gains to be achieved, economies of scale must be present together with such other factors as externalities and scope of economies in money production and circulation. But the optimal dimension of the zone covered by a single currency in Europe does not necessarily have to correspond to the establishment of a single currency for the European community (Salirt, n.d.).
From the above discussion, it is quite clear that there is need for the European community to adopt a single currency in order to increase the efficiency of the single market. The efficiency of the Europeans single market will be enhanced through elimination of problems associated with exchange rates, easing the goods and citizens travel, offering price stability and transparency and creation of a single main financial market. Single currency adoption will further fasten the economic and political integration of the European community and thus enable it to operate as a major trading bloc in the region. The adoption of a single currency by the European community will be a major step in unlocking the potential of the single European market that has been greatly hindered by the absence of a single common currency. The Europeans single market will become more efficient and effective in its operations as well as in increasing the level of activity of this vibrant economy. It is therefore very necessary for the European authorities to move with speed and implement policies that will result to the adoption of a single currency.
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