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A Common Currency for Europe ?

A Common Currency for Europe ? Christian Watrin * At present, the most important point on the European agenda is whether a common currency should replace the national currencies in the near future. The conference in Rome agreed upon a starting date of January 1, 1994. The central question to be raised is : will European consumers be better off in a single market with one currency ? Those who favor a common currency for Europe point to the fact that the cost of cross-border transactions will decrease, that the risks of exchange rate fluctuations will disappear, and that the possibility of distorting competition through discretionary exchange rate policies would no longer exist. More importantly, it is claimed that there will be an end to movements of capital motivated solely by expectations of changes in the exchange rates. The proponents of a single European currency claim that all of this will promote the movement of goods in the common market and have positive effects on capital formation and innovations. They argue that since a single currency area results in capital movements which are free from administrative hindrances and exchange risks, capital can migrate to those places where it achieves yields and, thus, generally provides http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal des Économistes et des Études Humaines de Gruyter

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Publisher
de Gruyter
Copyright
Copyright © 1990 by the
ISSN
2194-5799
eISSN
2153-1552
DOI
10.1515/jeeh-1990-0408
Publisher site
See Article on Publisher Site

Abstract

Christian Watrin * At present, the most important point on the European agenda is whether a common currency should replace the national currencies in the near future. The conference in Rome agreed upon a starting date of January 1, 1994. The central question to be raised is : will European consumers be better off in a single market with one currency ? Those who favor a common currency for Europe point to the fact that the cost of cross-border transactions will decrease, that the risks of exchange rate fluctuations will disappear, and that the possibility of distorting competition through discretionary exchange rate policies would no longer exist. More importantly, it is claimed that there will be an end to movements of capital motivated solely by expectations of changes in the exchange rates. The proponents of a single European currency claim that all of this will promote the movement of goods in the common market and have positive effects on capital formation and innovations. They argue that since a single currency area results in capital movements which are free from administrative hindrances and exchange risks, capital can migrate to those places where it achieves yields and, thus, generally provides

Journal

Journal des Économistes et des Études Humainesde Gruyter

Published: Dec 1, 1990

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