Scenario
As the world economy becomes more globalized, it is expected that economic integration will continue. There are 6 stages of economic integration, as follows:
- Preferential trading agreements
- Economic and monetary union
- Complete economic integration
Therefore, the European Union has come a long way, reaching stage 5 in 1999. It is the major monetary union of the approximately 20 monetary unions in the world today, and it is referred to as the European Economic Monetary Union, or EMU. The euro has become as important as the U.S. dollar and is being discussed as the next international currency, either replacing the U.S. dollar or sharing the position with the U.S. dollar as well as perhaps an Asian currency, such as the Japanese yen or Chinese yuan. For example, several countries are buying and selling oil in euros rather than U.S. dollars, which makes sense, given the majority of the oil transactions involve countries that use the euro. Other areas of the world are considering monetary unions, such as Southeast Asia and North America. Many countries' central banks hold U.S. dollars for transactions involving oil and other international transactions, which also helps support the value of the U.S. dollar.
Your firm is expanding into Europe, and your department head has asked you to put together a report on monetary unions in general, include the following:
- Discuss the advantages and disadvantages relative to a nation maintaining its own individual currency.
Discuss the EMU and the euro in detail, including the following:
- How it has functioned over the last decade, noting any issues that had to be overcome
- How did the International Monetary Fund (IMF) reassign the special drawing rights (SDR) as a result of changing from several European currencies to the euro?
- Discuss whether the EMU helped or hindered the development of the European Union.
- Conclude the report with a brief discussion on the possible advantages and disadvantages of the amero, a possible common currency for Canada, Mexico, and the United States, which has come up in the press from time to time. Discuss why you would favor or be against a common currency for North America.