With that background, we turn to the question of the effects of the EMU on the rest of the world. Although there are obvious differences, the Governing Council corresponds to the policymaking Federal Open Market Committee in the United States. Authority over monetary policy resides in the ESCB Governing Council, consisting of the Executive Board and the 11 presidents of the national central banks. While the Bundesbank served as the model, the arrangement is somewhat similar to the Federal Reserve System: the ECB, with a six-member Executive Board, is comparable to the Federal Reserve Board in Washington, and the national central banks are the analog of the 12 Federal Reserve Banks. The ESCB consists of the European Central Bank (ECB) in Frankfurt and the 11 existing national central banks. London, with its highly developed financial markets, will likely be the locus for many euro transactions whether or not Britain joins the EMU. It has been agreed that their exchange rates will be linked to the euro in an arrangement similar to the European Monetary System, with its Exchange Rate Mechanism, which has functioned since 1979. After June 30, 2002, the euro will be the sole currency in the region.įour member countries of the European Union-Denmark, Greece, Sweden, and the United Kingdom-will not be initial members of EMU but could join later. Many financial instruments, including government securities, will be redenominated into euros immediately in January 1999. Business firms can, if they wish, switch immediately to the euro. The euro will also have the unusual quality of not being issued by a sovereign government.ĭuring a three-year transition period, the 11 currencies will coexist with the euro, but their exchange rates will be irrevocably locked together. For the first time since the Roman Empire, a good part of Europe will have the same currency. The single currency-the euro-will enter into use, and the European System of Central Banks (ESCB) will establish a common monetary policy for what has come to be called euroland. The United States has every reason to welcome this further step in European economic and financial integration.Įconomic and Monetary Union (EMU) in Europe will come into effect on January 1, 1999, among 11 countries of the European Union (EU). The same is true of the euro’s function as an international asset and means of payment for the private sector. Some neighboring countries will adopt the euro as their reserve currency but it is likely to become a worldwide reserve currency, competing with the dollar, only gradually. The euro’s exchange rate will float in terms of the dollar and the yen. Having the same currency, the eleven countries are likely to enlarge their mutual trade. European Monetary Union-also known as the euro-zone and euroland-came into existence on January 1 among eleven countries of the European Union with a new currency-the euro-and a new European Central Bank.
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