A
monetary union is an agreement or a situation where several participating
nations agree to use and share one common currency. There are several monetary
unions in practice around the world. One of the most popular ones is the US
monetary system which includes several countries which are extremely diverse in
terms of geography, climate and heritage but are thriving under one monetary
union. The European monetary union or the EMU which was formed recently is
another addition to the list of successfully functioning monetary systems
around the world. The EMU has fifteen states who are all members of the
European council. They now use the common currency called the Euro. The launch
of the European Monetary union was divided into three stages which culminated
in the launch of the Euro as an official currency. Three members of the
European Union have not accepted this third stage of the monetary union and
continue to use their own currencies till date. These countries are the United
Kingdom, Denmark and Sweden.
Why a monetary Union?
There
are a lot of advantages of establishing a common monetary union over a large
land mass. Different regions can prosper even when the economy is not as
stable. They are able to cope better to disturbances in the economy or when
there are no nominal exchange rates. When you look at macroeconomic stability
and microeconomic benefits of a monetary union as compared to that of an
individual country, you will find that the former is always positioned better.
The EMU
In 2004,
ten more countries joined the European Union and they all will be acceded to
the third stage of the European Monetary Union in the next decade. There are
many countries which are now negotiating for an entry into the union. However,
the EMU has faced a lot of criticism whenever it was compared to the United
States. Experts feel that the Eurozone consists of countries which are much
more diverse in terms of culture and language as compared to the homogenously arranged
countries of the United States. The economic diversity in the countries is
another factor that is contributing to the criticism.