The initial costs of converting the individual currencies into one currency are very large. Individual countdes are not able to alter their own exchange rates in order to affect the international competitiveness of their exports or the costs of their imports. While a common central bank is seen as a prerequisite of monetary union, many argue that without fiscal integration, in the form of a common treasury, harmonized tax rates, and a common budget, a monetary union will be weak and vulnerable, since some countries will be more fiscally irresponsible than others and this may threaten the stability of the union. However, this would not happen and other measures would have to be found. For example, if one country v/as experiencing high inilation due to strong consumer demand, which other counries were not, it might want to increase interest rates to reduce the demand. This is especially damaging il one country in the union is experiencing an economic situation that is not being experienced by the others. This means that individual countries are no longer free to set their own interest rates and so the tool of monetary policy (see Chapter 14) is no longer an option to inlluence the inflation rate, the unemployment rate, and the rate of economic growth. When countries enter a monetary union, interest rates are decided by the central bank. What are the disadvantages of a monetary union for the member countries? There are also a number of disadvantages of a monetary union for the member countries. A common currency makes price differences more obvious between countries and should, over time, lead to prices equalizing across borders. When countries have different currencies there is a charge when currencies are exchanged but this will not happen with the existence of a single currency. Transaction costs are eliminated within the monetary union. Business confidence in the member countries tends to improve as there is less of a perceived risk involved in trading among the countries.This in turn should lead to both internal growth A currency which hasthe enhanced credibility of being used in a large currency zone should be more stable against speculation than the individual currencies where. What are the advantages of a monetary union for the member countries? - Exchange rate fluctuations that used to exist between countries will disappear with a common currency and this should eliminate exchange rate uncertainty between the countries involved which should increase cross-border investment and trade In 2010, the members consisted of Austria, Belgium, Cyprus, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Malta, the Netherlands, Portugal. The best example of an economic and monetaryunion is the eurozone, which includes the member countries of the EU that have adopted the euro as their currency and have the European Central Bank (ECB) as their central bank. What is an economic and monetary union? An economic and monetary union is market with a common currency and a common a common central bank. Grenada, St Kitts and Nevis, St Lucia, and St Vincent and the Grenadines. The current members are Barbados, Belize, Guyana, Jamaica, Suriname, Trinidad and Tobago, Antigua and Barbuda, Dominica. The CARICOM Single Market and Economy (CSME) is another example, which is expected to be fully implemented with harmonisation of economic policy and possibly, a single currency. What is an example of a common market? The best-known example of a common market is the EU. What is a common market? A common market is a customs union with common policies on product regulation and free movement of goods, services, capital and labour.
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