Saturday, February 24, 2007

Reader input on Euro-currency

I received an email asking me to post the content of the email in the blogs. I did not have the time to go through the full text in a critical way to offer my comments on his points. I encourage you all to join the debate by offering your comments. Here goes full text of the email…

Hi Friends

This blog is doing really well to brush up our concepts. Here is my understanding of the "Euro-common currency of European currency".

Major Advantages are:

  1. It will ease the exchange rate conversion with the countries in the group & thereby facilitate the trade & movement of Capital, Goods/Services, labour.
  2. It will boost the Export and import.
  3. No to Transaction costs. Transaction costs will be completely eliminated.
  4. Price Transparency. It will easily allow the goverment & even common man to compare the prices of the same good with prices from many nations. Hence may help in price gain during Export.
  5. No uncertainties while price is fluctuating. A common currency for all.
  6. More efficiency & effective trade.
  7. Feeling of Partnership. A healthy relationship will prevail between the members of the common currency, who will always help each other in time of needs. So chances of war will decrease.
  8. No race for arms & ammunition between the members(countries) (as in southeast asia).
  9. More money will be used by nation in building itself then wasting it on futile causes of wars. Budget of Pakistan, India, USA show about 30 % is used in strengthening its forces.
  10. Political pressure on countries to control their inflation, otherwise they will be devalued, so growing economy with controlled inflation.

Major Disadvantages are:

  1. Loss of independent monetary & exchange rate policy.
  2. It will require the coalition panel with representative from every country to decide the policy, will surely lead to some of the members unhappy because there will always be some members(countries) which will appose the policy & hence a system like voting will be used, which will surely affect the relationships between the governments.
  3. Loss of Sovereignty. Central banks will be undemocratic because it will not be elected body moreover the country where the bank will be have more say or authority on workings of bank.
  4. If a country needs to delate its economy in a limited time then somewhere it has to compromise with its employment capacity in country, in a summarized manner we can say it will put downward pressure on its economy.
  5. It will lead to an unstable system, if by chance any one country moves out, will lead to decreased or loss of faith by other members.

So we can really see it does have some disadvantages but with more advantages. I really think it’s in favour of a nation if it joins such a common currency.

This is all from side.



Sachin Jain

Associate Software Analyst

Induslogic Inc. Noida

Contact me @ +91-9999-410953

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