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The idea of the single currency evolved as a way of rivalling the dominant dollar and to make for a more balanced global trading environment. The European single currency will redress this balance that is offset by the United States

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Introduction

Introduction The idea of the single currency evolved as a way of rivalling the dominant dollar and to make for a more balanced global trading environment. The European single currency will redress this balance that is offset by the United States- the driving force in the world economy because it has just the one currency, even though the EU is a more important trading group. The single currency was bought about to promote European interests in the world. The Euro was introduced on 1 January 1999. By the middle of 2002 it should have replaced most national currencies within the European Union, bringing about full Economic and Monetary Union (EMU). Britain is one of the three countries in the EU that decided not to join on this date. Whereas before each country decided its own monetary policy, joining the single currency involves handing over this responsibility to the European Central Bank (ECB) in Germany; they decide such things as the rate of interest- now identical for each country committed to the scheme. In 1998, in preparation for the single currency, exchange rates were fixed, and it was also decided which countries qualified for EMU membership. Following this, a European system of Central Banks, with the European Central Bank in Frankfurt at its centre, was established. Other countries would then join the EMU as they met the qualifying conditions. Before any country could join in on 1 January 1999 the following conditions had to be fulfilled: low rates of inflation; low long-term interest rates; a low budget defecit, relatively low levels of public debt; a stable exchange rate; and an independent national Central Bank. By 2002 it has been decided that Euro notes and coins will come into circulation as legal tender, and national currencies will be withdrawn after six months. Gordon Brown, the Chancellor of the Exchequer, set five economic tests for Britain in October 1997 to 'gauge whether Britain is ready to take the plunge': 1. ...read more.

Middle

that we bear in mind the fact that Britain is NOT in the same economic stage to other countries have reaped will not necessarily apply to us, as our needs are different. This would mean that business in Britain could invest in the long term without having to worry about wild swings in interest rates (the ECB is likely to alter interest rates as often or as significantly as the Bank of England does since it has many more countries to consider, and needs to act in a way such that most countries will benefit equally). 9. The government is the biggest borrower of all; if we joined the single currency claims are that we would save up to 4 billion annually through lower interest rates. This could pay for 25 hospitals, 500 schools or thousands of work training places. 10. A single currency will make it easier for consumers to make price comparisons between different goods and services. Retailers will know this and will be forced to reduce their prices in order to complete. 11. There is now clearly a trend towards regional trading blocs, such as NAFTA and the EU. A single currency will give European countries far greater economic policy weight against rival trading blocs in America and the pacific. 12. Another advantage may be 'currency stability'. Had Britain joined at the start of 1999 we would have had a 20% fall for the sterling (as part of the Euro) against the dollar. But we would also have had, and this is what industry seems to want, stability with regard to Europe. Euroland accounts for 65% of the weighting in the sterling index. Overall, sterling would be more stable inside the Euro than outside. 13. If it does not join, Britain could be discriminated against by the set of 'insider' rules decided by the European states that are part of the single currency. ...read more.

Conclusion

I feel that we would be taking great risks in doing so, and although there is much to be gained from joining, it is unlikely that the British economy will actually worsen to the same extent as a result of not joining. This is a contrast to the situation described above (boom, inflation, etc.) that could arise, quite feasibly, if we do become part of the system. There is much at stake, and the potential gain is not great enough, in my opinion to justify this risk. (What we stand to gain is less than what we stand to lose). If the UK became part of the system international trade would be boosted, having a knock on effect on businesses in the UK (enhanced by the fact that we are, in effect an 'island' and therefore more reliant on this trade(. But the people to gain the most would be British exporters they would benefit in two ways: trade has opened up for them (the reason given above) but also their export earnings would probably increase because of the fixed exchange rate that would ensure if we joined. This is a 'but' because if we compare the proportion of people in the UK tat stand lose from joining, from those who will directly and almost definitely gain, it is very difficult to justify. Large businesses and exporters are the ones that really need the UK to join the system. Harsh though it may be, we cannot oblige these few, in the minority, at the expense of so large a percentage of the population (and if we do join and experience problems they too will feel them). -just as the ECB cannot oblige us at the expense of the rest of Euro zone (making the fair assumption that our economy will not be perfectly convergent with Euro zone all the time, and that we will be in the minority). Therefore I think I have proved my hypothesis, Britain should not join the Euro as I don't think it will benefit the UK's economy greatly. ...read more.

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