The Euro and Its Benefits: Trade in Hard and in Soft Currencies

Pan A. Yotopoulos and Donato Romano
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Pan A. Yotopoulos: Stanford University

Zagreb International Review of Economics and Business, 1999, vol. 2, issue 2, 25-38

Abstract: The introduction of the euro is a momentous event that has important implications for the world, for Europe, and also for the world. Protectionism in Europe in its various forms is being given a final blow with the introduction of the common currency that, for the first time, will lead to genuine convergence in prices. The abolition of the internal foreign exchange borders has profound effects for competitiveness and trade. It entails more freedom for Euroland’s producers to swim competitively – and especially to sink. What looks like a more self-sufficient (or ‘closed’) Euroland is in effect an open domestic market that has converted into domestic-currency transactions what previously constituted international trade involving foreign exchange. This conversion is uniquely beneficial for the partners that previously had the relatively softer currencies. Finally, the benefits to the EMU partners multiply and spill over to the global level as the euro becomes a strong, and potentially a parallel resere currency.

Keywords: Monetary union; euro; hard/soft currencies; financial crises (search for similar items in EconPapers)
JEL-codes: E42 E5 (search for similar items in EconPapers)
Date: 1999
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