## Pros and Cons on common currencies like Euro

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1

I thought on Euro and if it is good or not for people generally. I am pretty much puzzled, and I have only personal opinion on this topic which is:

• It can be good for smaller countries, against currency speculation.
• It can be bad for anybody who has lower life rating and adopting a currency with usage in a higher life rate territory, the prices generally go up while the salaries are following that slowly.
• It might be good or bad, because it can not be manipulated by the country's central bank for the good of the country. It is good if the government is corrupt, and has no access, and it is bad when the government is relatively fair and wants the best for the country.

Do I miss points? Or am I mistaken in some of my points? What are the political impacts of adopting a non-native currency?

Question was closed 2014-03-11T21:57:47.420

1You're points are all correct. I'd like to answer but I'm having trouble with the language. Can you clarify "life rating?" Is this standard of living? – Razie Mah – 2014-03-06T13:31:08.490

@RazieMah yes, exactly. I would like to see a good article on it, I couldn't really find professional source. – CsBalazsHungary – 2014-03-06T15:48:27.470

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In economics, there is a general theory on when it is efficient for some region to have the same currency, the key word being Optimum Currency Area. The Wikipedia article also discusses the case of the EU.

Concerning your points, arguments 1 and 2 also pop up in the OCA theory. Point 3 seems to state that the central bank of a common currency area could work more efficient and be more credible when it is independent, compared to national central banks which may be controlled by the government. This is a classic argument from economic research on central bank independence.

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Since all the points are correct, here is economist David Marsh speaking about his book. He thinks a break up of the Eurozone will happen in the next five years and talks about the politics involved as well as the economics. The political impact might be that chaos will ensue as the EU breaks up or the EU might dissolve down to a much smaller size in an orderly way and Europe will have to readjust its expectations.

Here is a Financial Times article that speaks about small nations deciding whether to join the EU, such as Estonia and Latvia. Joining can increase trade and lower costs of conversion, so for nations with a lower standard of living joining can be helpful. It can stabilize their currency if they have inflation problems or outside currency speculation as you pointed out. For nations that have stable independent currencies, the EU isn't looking like such a good deal right now. Many nations also want to join because it is an achievement to be asked to joined and politically the EU is still a strong symbol of European unity. The political impact of the Euro has been to create a stronger European identity.

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Having looked into economics and how central banks work, there are no pros, only cons of a common currency, let alone any modern currency.

The scam: When a government borrows money from their central bank, they are buying a bond. Let's say that bond is $1m. The central bank creates$1m as well, meaning that in total, \$2m has been created. So whenever governments talk about borrowing their way out of trouble, it means that they're just getting into more debt. To who? The Rothschilds?

Do you have an alternative to currency? – Bobson – 2014-03-06T19:30:40.127

@bobson Pound and Dollar are both weights, of sterling silver and gold respectively – Luke Madhanga – 2014-03-06T19:32:53.903

So, the Gold Standard. It's a viable alternative, but doesn't answer this question at all.

– Bobson – 2014-03-06T19:39:10.740

@bobson The person asked for the pros and cons. They were given – Luke Madhanga – 2014-03-06T19:40:17.820

Whether a given currency is backed by gold or not is entirely irrelevant to the political impacts of adopting a non-native currency, or the pros and cons of doing so in general. If the Euro was backed by gold, there'd still be implications for using it instead of a national currency. – Bobson – 2014-03-06T19:44:08.690

@dobson So having a currency that is open hyper inflation is not a con? – Luke Madhanga – 2014-03-06T19:45:41.297

If you're choosing between two currencies which both are open to hyper inflation, does it matter? Only if one is more likely to suffer from that than the other. In which case that is a legitimate answer (i.e. 'The Euro is more likely to ...' or 'The Euro provides less protection against...'). But if they both have the potential, then there's no choice there and neither is worse. – Bobson – 2014-03-06T19:53:29.297

@dobson Fair point. So on here you're not allowed to give more information than what is required? That's what I've been getting these last two days! – Luke Madhanga – 2014-03-06T19:55:42.093

1It's not so much about "more information than what is required" as the right way to frame it. If I ask "Why is my car making this sound?", a good answer would be "It could be X, Y, or Z. That type of car is prone to all sorts of problems." A bad answer would be "That type of car breaks down every 10 miles." The first one directly answers the question, then provides additional information. The second provides the same extra information, but doesn't help diagnose the sound at all, which means it can't help answer my question. – Bobson – 2014-03-06T20:08:36.627