• Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

Disadvantages for the UK if they join the single currency

Extracts from this document...

Introduction

Disadvantages for the UK if they join the single currency After Black Wednesday when the UK was forced to leave the exchange rate mechanism system, the pound started to appreciate in the long run around 1996. It appreciated 23% against what is now the euro. This happened due to the UK outperforming countries of the ERM and becoming substantially more competitive. Additionally, inters rates were high in the UK and a lot of 'hot money' flowed into the UK economy. UK manufactures learnt to deal with the strong pound and the volumes of exports were increasing once again, improving the current account deficit. The government were able to use certain polices to get into this possible economic situation and the Bank of England was able to adjust interest rates in order to control inflation. However once the UK join the Euro both exchange rate policy and many other policies and interest rates will be in control of the European Central Bank. ...read more.

Middle

If interest rates are raised then consumption decreases and so does investment, leading to more unemployment. So in theory the Euro seems beneficial for the members of it, however when looking into it we see that the Euro has many underlying difficulties like creating a policies that fit all the member economies; it will not happen. Critics of EMU say that the creation of a single currency will abolish the policy option to set interest rates separately at the level appropriate for each country. This exchange of power from our central government to the European Central Government projects another disadvantage to joining the Euro. Euro sceptics believe that joining the Euro will take away our national sovereignty. Having foreign central government deciding on the polices of our economy diminishes our identity, we are not able to decide our own future of our economy, it is in the hands of central European bank. Keeping the British pound is a national sign of our 'Britishness' and it is important to keep it in order to maintain this identity. ...read more.

Conclusion

Lastly there are high transition costs of joining the Euro, it is estimated that it will cost British retailers between �1.7 and �3.5. Such changes include educating customers, changing labels, training staff, changing computer software and adjusting tills. These costs may cause a temporary blip in inflation. The economy may experience cost-push inflation where the transition costs are put onto the customer. At the moment the UK is two-steps behind those in the members of the EMU. This is advisable because they are able to see if the euro succeeds or fails and this will not be shown until a few years yet. Therefore if it succeeds they can become members, however if it fails they have not lost anything, whereas the countries of the EMU will have experienced two sets of transition costs. The UK economy is in a good situation at the moment and so there is no need to join the single currency just yet, however if it proves successful then the UK can take action. ...read more.

The above preview is unformatted text

This student written piece of work is one of many that can be found in our GCSE Economy & Economics section.

Found what you're looking for?

  • Start learning 29% faster today
  • 150,000+ documents available
  • Just £6.99 a month

Not the one? Search for your essay title...
  • Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

See related essaysSee related essays

Related GCSE Economy & Economics essays

  1. "Marks & Spencers" and the EMU.

    * Changes in cost and efficiency E.g. lower costs emerge because of economies of scale or technological process innovation; higher cost emerge because of sharply rising costs for a critical input such as labour or raw material or component or energy costs. * Regulatory influences and government policy changes To many companies, domestic political considerations are likely to be of prime concern.

  2. The Quest for Optimal Asset Allocation Strategies in Integrating Europe.

    are not much lower than industry index correlations (0.541) anymore. This might indicate a possible turning point of optimal diversification strategies in the most recent time period. Many authors have suggested the spreading of the invested position over both countries and industries as the optimal diversification strategy.

  1. Split Votes: A Nation Divided on the Marijuana/Drug Legalization Debate

    Zheman would be better off citing specific examples of these moral atrocities to give his argument more credibility. Then the reader would have actual people to vilify, instead of a broad group of policy makers. Mike King does not feel that Zheman did a proper job presenting both sides of the marijuana debate.

  2. THE UK AND THE EURO

    11. Influence By joining the euro, the UK will have a voice in certain economic and financial committees that will affect her economy. They will be in position to oppose adverse policies and support those that will be of national benefit.

  1. An Empirical Investigation into the Causes and Effects of Liquidity in Emerging

    the EMBI Global Index increases by 1%, the liquidity of the Merrill Lynch Index increases by 0.330581%. This also holds theoretically because of the fact that the two bond markets are competing asset classes. Thus, a sell-off in one market will probably be as a result of investors switching their positions into the opposing market.

  2. Entry criteria to the Euro

    can benefit from the increases in Eurozone trade, investment, competition and productivity. Lower prices would lead to a lower cost of living, a key potential benefit of EMU entry for households. Poorer households tend to spend a greater proportion of their income on goods and services, so lower prices could benefit such households relatively more than wealthier ones.

  1. coming up with investments from three geographical regions

    a conventional diversified equity fund due to its mid-cap bias, high turnover and high cash component. Because it is part of a much larger portfolio Reliance Growth will not be a core holding, which clearly is not what it should be.

  2. Living Wage

    Production sharing is one of the main reasons why foreign direct investment has been pouring into East Asia as well as other low-wage areas. With this background, how long can the rise in emerging market exports last? One way to start is to ask why imports from emerging markets are not even larger.

  • Over 160,000 pieces
    of student written work
  • Annotated by
    experienced teachers
  • Ideas and feedback to
    improve your own work