Costs and Benefits of Joining a Monetary Union

key terms

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economic fluctuations

exchange rate

monetary union

moral hazard

transaction costs

On January 1st, 1999 eleven countries in Europe adopted a common currency and formed a monetary union.  By January 1st, 2002 all national currencies ceased to circulate and were replaced by the euro. Arriving at this point involved careful planning, but why? (Click here for the history.) 

As with almost anything in life, there are potential costs and benefits to becoming a member of a monetary union. Political leaders in many European countries decided that the benefits outweighed the costs and commenced with the formation of the European Monetary Union (EMU). This monetary union has continued and will continue to enlarge

So what are the costs and benefits of joining the EMU? 



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