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What are advantages of adopting the euro?

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Quick Answer

Advantages of adopting the euro include lower transaction costs, price transparency, eliminating uncertainty in exchange rates and improved performance in inflation. The euro is the second largest reserve currency in the world as of 2015.

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Full Answer

Using a single currency eliminates the cost involved in changing currency, benefiting businesses that trade within the euro area.

A common currency also makes it easier to compare prices in different European countries. This makes it easier for firms to find sources of cheaper raw materials. Consumers can also find cheaper goods where a common currency is involved.

Adopting the euro helps to shield businesses from volatile shifts in exchange rates, increasing profitability in exports. Rapid appreciation is a major problem for businesses dealing with different currencies. Uncertainty in exchange rates also undermines confidence in investing. A single currency helps to boost business confidence and may lead to greater economic and trade growth.

Lastly, the European Central Bank, which determines interest rates for the euro zone, is committed to keeping inflation as low as possible. Businesses located in countries that traditionally have high inflation rates may benefit from better inflationary discipline. Some financial experts, however, believe that the ECB’s focus on low inflation may increase unemployment and undermine growth. Some countries outside of the Euro have also been able to maintain low inflation.

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