monetary unions

• what are Monetary unions?

  two or more countries with a single currency, common currency

  
  

  exchange rate monitored and controlled by one central bank or several central banks with closely coordinated monetary policy.
• examples of monetary unions?

  EU, the West African Economic and Monetary Union and the Economic and Monetary Community of Central Africa, Eurozone
• What is one advantage of monetary unions?

  Prices are fixed as all currencies are the same
• How do monetary unions reduce exchange rate costs?

  By having a single currency across the union
• Why is it easier for prices to be compared across a monetary union?

  Because all currencies are the same
• How does a monetary union affect multinational corporations (MNCs) regarding pricing?

  MNCs are less able to price discriminate
• What is a financial cost associated with starting a new currency in a monetary union?

  Costs involved with establishing the new currency
• What potential cost arises if a monetary union breaks up?

  There would be costs associated with the breakup
• What is a consequence of losing policy independence in a monetary union?

  Countries are unable to change the value of their currency
• Why might what is good for one country not be good for another in a monetary union?

  Because the economic needs of each country can differ
• What are the advantages and disadvantages of monetary unions?

  Advantages:

  • Fixed prices across the union
  • Reduced exchange rate costs
  • Easier price comparison
  • Less price discrimination by MNCs

  
  

  Disadvantages:

  • Financial costs of starting a new currency
  • Costs if the union breaks up
  • Loss of policy independence
  • Inability to change currency value
  • Varied benefits for different countries