Monetary Union- Advantages and Disadvantages of joining the Eurozone Flashcards
(4 cards)
What is a Monetary Union?
A group of countries that trade freely among themselves, share the same currency, central bank, and monetary policy. Example: Eurozone.
Advantages of Joining the Eurozone:
No exchange rate fluctuations – Easier trade between member countries.
Lower currency conversion costs – Consumers and businesses save money.
Increased business confidence – Less currency risk and speculation.
Price transparency – Easier to compare prices across countries.
Disadvantages of Joining the Eurozone:
Loss of independent monetary policy – Countries cannot adjust interest rates or money supply to suit their own economy.
No guarantee monetary policy fits all members – Policies may benefit some countries but harm others.
What are more disadvantages of joining a monetary union like the Eurozone?
No ability to alter exchange rates — Countries cannot devalue their currency to improve competitiveness.
High currency conversion costs initially — Physical costs of printing new currency and withdrawing old currency can be very expensive.
Lack of fiscal union — Without a shared fiscal policy, individual countries may adopt unsustainable budgets, risking the stability of the entire union.
