Unified European Currency
From Dickinson College Wiki
Unified European Currency
Benefits of a Unified European Currency
Practical Benefits:
- Transaction Costs: Dealing in a single currency reduces the cost of converting one currency into another. This benefits both businesses conducting international trade as well as tourists. Citizens can travel more conveniently within the Euro area without having to deal with currency conversion. Also, because the Euro is an international currency, it is accepted in many places outside the Euro-area.
Single Market Benefits:
- No Exchange Rate Uncertainty: Eliminating exchange rates between European countries eliminates the risks of unforeseen exchange rate revaluations or devaluations. This provides a more stable trading environment in which business no longer have to consider currency movements in their production costs. It also provides a more predictable and stable financial market.
- Elimination of Various Business Transaction Costs: Including the costs of buying and selling currency, hedging operations to protect from rate fluctuations and a reduction in account management costs (there is no longer a need to maintain accounts in multiple currencies)
- Transparency & Competition: The direct comparability of prices and wages increases competition throughout Europe. Competitive market forces lead to lower prices for consumers and improved investment opportunities for businesses.
- Foreign Investment: Foreign investors can conduct business within the Euro-area with little disruption and benefit from a more stable economic environment.
Single Financial Market Benefits:
- Financial Operation: The Euro increases the market size and operation for financial operators such as banks, insurers, investment funds and pension funds.
- Capital Market: The large Euro zone integrates the national financial markets, leading to higher efficiency in the allocation of capital in Europe.
- Financial Market Competition: Savers benefit from a wider and more diversified offer of investment and saving opportunities while investors can spread their risks more easily, and have the opportunity to engage in riskier ventures. Simultaneously, private and corporate borrowers as well as equity issuers benefit from better funding opportunities because money is easier to raise in capital markets.
