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One government, one money

An obscure economic dispute between Metallists and Cartalists reveals an unnoticed difficulty with Emu. Charles Goodhart, a leading financial economist, says that crises in the foreign exchange markets could simply shift to the bond markets

By Charles Goodhart   March 1997

The conventional economic analysis of Emu compares the balance of savings in transactions costs-the cost in money, convenience and risk of dealing in more than one currency-against a potential worsening of difficulties in macroeconomic adjustment. After all a country’s declining competitiveness can be mediated, and the blow softened, by a declining exchange rate. If there is no insulating national currency, declining competitiveness must translate directly into unemployment. Proponents of Emu tend to be both more optimistic about the size of the transaction cost saving, and more sanguine about any worsening of adjustment difficulties. Those more sceptical about Emu stress the…

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