Decided on the health of the economy of country

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Reference no: EM132303846

Discussion: A Universal Currency?

The valuation of currency of a country is decided on the health of the economy of a country. More the economy is healthier more would be its value and the health of the economy depends upon the fiscal and monetary policies of a country which helps to maintain good production growth and maintain the inflation at control so that the value of a currency would not come down.

Now with a single currency, it needs to have unique economic polices for member countries and it might create imbalance for exports and imports.

Some of the advantages of a single currency are:

1. Conversion costs of currency can be reduced when people travel to different parts of the world

2. It eliminates of exchange rate uncertainties

3. With the unique policies it helps to maintain transparencies in prices

Some of the disadvantages are:

1. With the single currency the common monetary policy would not support equally for all countries as the economic resource availability is different

2. The external economic shocks would have adverse affects as with the increase in prices of oil it might the growth of the other countries

3. An export and import imbalance could arise because of same currency as the resources used for production varies across the globe.

Required:

What would be the impact on world trade and investment if there were only one, universal currency? What would be the advantages and disadvantages of such an arrangement?

I've posted some examples above. Please answer both questions of 350 words.

Reference no: EM132303846

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