A Sensible Decision
It’s accurate to observe that imitation in many circumstances cannot be perceived as the sincerest form of flattery. Saying that it is also hard to not acknowledge the role of successful Euro transition in reviving interest in currency unions elsewhere, as leading figures such as Peter Sutherland have noticed. Events have set back the target dates of 2010 for a Gulf Cooperation Council single currency, and 2011 for an Eastern Caribbean States economic union seem to be becoming increasingly unlikely; even more so, the single East Asian currency proposed by the Asian Development Bank’s then-president Tadao Chinoall the way back in 2004, and the African Union’s plan for an African Economic Community by 2023. But it’s a tribute to the Euro’s trouble-free launch, and early stability of the Eurozone as a whole, that the very notion of planning on doing the same thing elsewhere in the world was suggested in the first place.
A single regional currency has also shown other benefits: one external exchange rate to take care of instead of Reductions in exchange risk and transaction cost were a major selling-point of economic and monetary union (EMU) within the EU. Taken together all of these positive points have been incrementally greater for many of its smaller less-developed country (LDC) trading partners. The Millennium Development Goals are still frustrated by the European Union foot-dragging on farm reform (disrupting conditions for many low-income agricultural producers); and by its switch to WTO compliant trade pacts that force reciprocal concessions from those enjoying tariff-free free goods and service trade, with a risk of killing their new industries in infancy. At least, through the Euro, Europe has been able to deliver in one key area to compensate. A single European Union currency significantly reduces the costs and risks to LDC central banks of monitoring exchange rates and external debt with limited reserves – and to LDC businesses of hedging (or gambling with) currency risk when they borrow, exchange capital or engage in trade with Europe.
But the UK’s absence from the single currency has resulted in a serious dilution of these emerging-world benefits, especially for those countries whose trade was steered towards Britain by colonisation and the subsequent ’sterling area’. This has been a burden to bear for the Euro Zones newer members most notably Cyprus and Malta, whose visible tourism trade is still extensively UK-focused but whose imported fuel, goods and services come mainly from Euro-land. Britain’s trade integration and structural convergence with other member states, which makes its monetary union with them increasingly appropriate, also means that LDCs once focused on the sterling or Euro zones are now deeply engaged with both. All too often these victims of ‘economic adjustment’ await a a policy decision which would not weigh so heavily, from London, that would lessen the risk of a currency crisis recurring.
