The Challenges of Creating a Common Currency - dummies

The Challenges of Creating a Common Currency

By Ayse Evrensel

The introduction of the euro in 1999 may have been the most interesting event in international finance for a long time. It doesn’t happen every day that a number of countries give up their own currency and replace it with a common currency.

When you read about the euro then or when you consider it now, you may not realize the kind of work and cooperation necessary for not only creating but also sustaining a new common currency for a number of countries.

Therefore, it’s always informative to dig deeper into the institutional background to see how a common currency works and what policy makers are doing on a daily basis to preserve the value of the euro.

The European Central Bank (ECB) is in charge of issuing the euro as well as conducting monetary policy for the Euro-zone. When you go to the ECB’s website, one of the most striking features is that the website is in 22 languages, even though there are 17 countries in the Euro-zone. Additional languages belong to EU members that are not in the Euro-zone yet.

As you check out the ECB’s websites, you’ll realize the difficulty of coordinating monetary policies among the Euro-zone countries. Monetary policy has to be conducted for the entire Euro-zone, independent of differences among the Euro-zone countries.

This is not an easy task, because countries such as Germany with robust economies would want to keep interest rates high to keep inflation in check, while countries such as Greece would want lower interest rates to give their economy an additional boost.