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Currency Exchange

The ability of a country to improve the standard of living for its citizens is dependent on exchange rates or the power its currency has over others. According to European Central Bank (2021), the stability of a currency determines the development of the international role. There is no doubt that Euro is the most used currency in the world after the US dollar. Considering its value against other currencies, its international impact in growing the economy is highly felt. The European economy is growing very fast as a result of the high exchange rate of the euro. The general outlook of the country’s economy is admirable. As it continues to appreciate, Europe’s international economic power will increase. Its appreciation is purely based on the stability of the currency over time.

The emergence of the euro has brought a major change such that other countries have adopted a common foreign currency. The move is meant to improve the trade relations among countries. The move has both economic and political benefits through a debate that still exists. Small countries have overcome what is commonly referred to as the fear of floating. In this situation, they prefer a fixed-rate other than a floating exchange rate. However, studies have shown that if two countries have a common currency, the effect on bilateral trade is stronger as compared to a fixed exchange rate scenario. In recent times, floating rates have posed a threat to emerging economies such that they face attacks from major economies which use the floating regime. These threats force a country to adjust its domestic policies to quickly adjust to the conditions and prevent its economy from external shocks (Hawkins & Masson, n.d). Whether the common currency affects a country’s economic power and its policies positively or negatively, the decision to adopt the currency relies entirely on the affected country.

 

References

European Central Bank (2021). The international impact of the euro. Retrieved April 28, 2021, from, https://www.ecb.europa.eu/press/key/date/2000/html/sp000113.en.html

Hawkins, J. & Masson, P. (n.d). Economic aspects of regional currency areas and the use of foreign currencies. Bis. Retrieved April 28, 2021, from, https://www.bis.org/publ/bppdf/bispap17c.pdf

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