Chapter 14

The Euro: A Study in Common Currency

In This Chapter

arrow Understanding Europe’s steps toward a monetary union

arrow Identifying the characteristics that make a region an optimum currency area

arrow Seeing how the European Central Bank functions

arrow Exploring the benefits and challenges of the euro

Most of this book focuses on exchange rates between countries, implicitly assuming that these countries have their national currencies. What if a number of countries that have had their national currencies for a long time decide to abolish their currencies and adopt a common currency? Once the common currency is in place, then, in accordance with exchange rate determination, you start asking questions about the monetary authority of the common-currency area. Who is conducting monetary policy? What kind of monetary policy will they conduct? Is it likely that governments of the common-currency area affect monetary policy? Establishing a common currency area among sovereign nations is no doubt an important undertaking. Therefore, this chapter starts with the preparation period during which European ...

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