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Euro
The Euro is the common currency of 12 of the 15 European Union nations.
There are seven different banknotes printed on paper containing genetically modified cotton.
Ђ50, Ђ10, Ђ20, Ђ50, Ђ100, Ђ200, Ђ500
There are eight coins. One side of the coins is common to all the countries, the reverse is specific to each nation.
Approximately Ђ14.89 billion banknotes and Ђ51.629 billion coins were initially minted.
The Euro came into theoretical operation on 1st January 1999.
On 1st January 2002, 12 European Union members got rid of their own currencies and introduced the Euro as their sole currency.
Britain has yet to join the Euro and Jack Straw, the Home Secretary, has stated that the decision will almost certainly be a political one.
The Chancellor, Gordon Brown, stated that the decision will be an economic one and that Five Tests will be used to determine whether Britain joins the Euro
The Five Tests
In order for the Euro to be introduced in Britain, Gordon Browns Five Tests for UK participation must be met. This is largely so, particularly the advantages to the Financial Services sector.
Low inflation
The prospect of sustained low-inflation under the responsibility of an independent European Central Bank should reduce long-term interest rates and stimulate sustained economic growth and competitiveness. The UK has a successful flexible labour market that would be highly effective inside a single currency area.
Arguments for a single European currency often rest finally on the hope that it will usher in permanently low inflation, which has been the expressed objective of British policy for some years. The benefits of low inflation are beyond dispute. Markets work more efficiently, the quality of savings and investment decisions improves, tax distortions are removed, and there is an end to the arbitrary and unfair redistribution of income which takes place through inflation.
Until recently the British record on inflation was poor, compared with the foremost currency of Europe, the Deutschmark. The primary objective of the European Central Bank (ECB) is price stability. The decisions of the ECB will be taken by the Governing Council, made up of the heads of participating central banks. The ECB is likely to want to adopt as much as possible of the Bundesbanks reputation for stability and prudence.
On the other hand each member of the Governing Council will have one vote and decisions will be by simple majority, so Germany will have no more formal rights than any other country.
Sustainable growth, high employment and permanently low inflation require great determination on the part of government and self-discipline on the part of economic participants. This determination cannot be subcontracted to an ECB.
Low interest rates
A European central bank will focus on economic conditions across the community and so will have a less volatile interest rate policy than the Bank of England, or other central banks. The credibility that attaches to the monetary policy of a European-wide central bank will render the
Euro a strong currency and thus permit lower interest rates than at present within the UK – investment and growth are obvious beneficial consequences.
In addition, the elimination of exchange rate fluctuations has a positive impact on intra-European trade and a further downward impact on the level of interest rates.
Price stability, sound public finances and low interest rates constitute ideal conditions to foster economic growth, investment and employment creation within the Euro area.
Transaction costs
According to the European Commission, currency conversion costs amount to about 0.4% of EC GDP per year.
A single currency would eliminate exchange rate fluctuations, providing a more stable environment for trade within the Euro area by reducing risks and uncertainties for both importers and exporters.
Citizens can travel more easily within the Euro area without the hassle of changing currencies every time they cross a border, and are better able to compare prices since they can use their own currency anywhere in the Euro area.
Travelling outside the Euro area is also easier since the Euro is an international currency and therefore widely accepted in many places outside the Euro area, particularly in tourist destinations.
More opportunities for consumers: the single currency makes it simpler for consumers to travel and to buy goods and services abroad.
Reduced exchange rate uncertainty for UK businesses and lower exchange rate transaction costs for businesses and tourists will bring an increase in economic welfare.
Price transparency
A single currency promotes price-transparency – customers can readily assess the relative prices of similar products from anywhere within the union.
Consumers and businesses can compare prices of goods and services more easily when always expressed in the same currency.
Prices in the UK will be driven lower once we are in the Euro zone because of price transparency.
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