adopting a common currency
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Adopting a Common Adopting a Common CurrencyCurrency
And It’s AdvantagesAnd It’s Advantages
Group 2Group 2Shakul Aggarwal (07927835)Shakul Aggarwal (07927835)
S.Prashanth (07927841)S.Prashanth (07927841)
MotivationMotivation
Vajpayee’s statement at SAARC Summit in 2004.Vajpayee’s statement at SAARC Summit in 2004.
ADB’s vision of a common currency for East AsiaADB’s vision of a common currency for East Asia
Adoption of Euro in 1999.Adoption of Euro in 1999.
Euro as an exampleEuro as an example
Motives for Single Currency in EuropeMotives for Single Currency in Europe
To enhance Europe’s role in the world monetary system.To enhance Europe’s role in the world monetary system.
To turn the European Union into truly unified market.To turn the European Union into truly unified market.
Transformation of EU into truly unified Transformation of EU into truly unified marketmarket
free trade in goodsfree trade in goods
free trade in servicesfree trade in services
free mobility of capitalfree mobility of capital
free mobility of laborfree mobility of labor
RoadblockRoadblock Existence of separate national currencies.
The History of the EuroThe History of the Euro
30 odd years to fructify30 odd years to fructify
The Werner Plan The Werner Plan The European monetary system (EMS)The European monetary system (EMS) The ECUThe ECU
Werner PlanWerner Plan
Laid out by Pierre Werner, the Finance Minister of Luxembourg in Laid out by Pierre Werner, the Finance Minister of Luxembourg in 1970 .1970 .
11stst stage: reduction of fluctuation margins between the currencies of stage: reduction of fluctuation margins between the currencies of the Members States. the Members States.
22ndnd stage: total liberalization of the capital movements with the stage: total liberalization of the capital movements with the integration of the financial marketsintegration of the financial markets
33rdrd stage: irrevocable fixing of the exchange rates between the stage: irrevocable fixing of the exchange rates between the different currenciesdifferent currencies
establishment of a decision center for economic policyestablishment of a decision center for economic policy
Failed due to international turmoil at that timeFailed due to international turmoil at that time
European Monetary SystemEuropean Monetary System (EMS) (EMS)
Collapse of Bretton Wood System in 1971.Collapse of Bretton Wood System in 1971.
In 1972 EEC nations linked their currencies In 1972 EEC nations linked their currencies
An arrangement established in 1979 under the Jenkins European An arrangement established in 1979 under the Jenkins European CommissionCommission
The ECU The ECU An Exchange Rate Mechanism (ERM) An Exchange Rate Mechanism (ERM) An extension of european credit facilities. An extension of european credit facilities. The European Monetary Cooperation FundThe European Monetary Cooperation Fund
European Currency Unit European Currency Unit (ECU)(ECU) The ECU was conceived on 13 March 1979 The ECU was conceived on 13 March 1979
a basket of the currencies of the European Community member a basket of the currencies of the European Community member statesstates
used as the unit of account of the European Community before used as the unit of account of the European Community before being replaced by the euro.being replaced by the euro.
On Jan 1, 1999, the Euro replaced the ECU, at the value 1 EUR = 1 On Jan 1, 1999, the Euro replaced the ECU, at the value 1 EUR = 1 ECU.ECU.
Why was EMS not enough?Why was EMS not enough?
Single currency was believed to produce a greater degree of Single currency was believed to produce a greater degree of European market integration than fixed exchange ratesEuropean market integration than fixed exchange rates
Fear of dominance of Bundesbank emphasizing German Fear of dominance of Bundesbank emphasizing German macroeconomic goals macroeconomic goals
Given the free capital movements, maintaining a single currency Given the free capital movements, maintaining a single currency was the best solution. was the best solution.
Political stability of EuropePolitical stability of Europe
Roadmap to a Common CurrencyRoadmap to a Common Currency
Trade DependenceTrade Dependence
Fiscal convergenceFiscal convergence
Institutional considerationsInstitutional considerations
Transparency policy and statistical requirementsTransparency policy and statistical requirements
Structural reformsStructural reforms
Optimum Currency Area (OCA)Optimum Currency Area (OCA)
Geographical region which would maximize economic efficiency to Geographical region which would maximize economic efficiency to
have the entire region share a single currencyhave the entire region share a single currency
Criteria for OCACriteria for OCA
Labor mobility across the region Labor mobility across the region
Openness with capital mobility and price and wage flexibility Openness with capital mobility and price and wage flexibility
An automatic fiscal transfer mechanismAn automatic fiscal transfer mechanism
Benefits of a Common CurrencyBenefits of a Common Currency Elimination of transaction costsElimination of transaction costs
Transparency of prices Transparency of prices
Optimal Allocation of ResourcesOptimal Allocation of Resources
Reduced exchange rate uncertainty Reduced exchange rate uncertainty
Low inflation, standardization of interest rates Low inflation, standardization of interest rates
Removal of Misalignment of currenciesRemoval of Misalignment of currencies
Increasing welfare and economic growthIncreasing welfare and economic growth
Planned Common CurrenciesPlanned Common Currencies
Gulf cooperation council’s planned introduction of a Gulf cooperation council’s planned introduction of a common currency called common currency called KhaleejiKhaleeji in 2010 in 2010
Caribbean Single Market and Economy’s common Caribbean Single Market and Economy’s common currency due between 2010 and 2015.currency due between 2010 and 2015.
Southern African Development Community’s (SADC) Southern African Development Community’s (SADC)
common currency due in 2016common currency due in 2016. .
Conclusion Conclusion
Currency Union is the way to go forward as shown by the EuroCurrency Union is the way to go forward as shown by the Euro
GlobalizationGlobalization Increase in the No of countriesIncrease in the No of countries
What is required?What is required? Stakeholders should form a region-wide self-help system.Stakeholders should form a region-wide self-help system. A strong political will .A strong political will .
THANK YOU!!THANK YOU!!