Euroization

The adoption of the EUR as a currency unit by a country that is not part of the European Monetary Union. – Advantages are – the adoption of a stable currency, – lower interest rates; because the larger a currency area, the lower CETERIS PARIBUS the interest rates will be, – no exchange rate risk and – no risk of speculative attacks on the currency. – The disadvantage is that – the respective state has no vote in the ECB Governing Council and – forgoes central bank profits (seigniorage; seigniorage). – Economic entities outside the euro zone do not use the domestic currency for payment and investment purposes, but the EUR. Euroization in this sense is always a sign that economic agents do not trust their own currency. Only reliable governance and a central bank policy strictly geared to preserving the currency’s massta properties are capable of halting or reversing euroization. Even very high threats of punishment do not bring about a return to the domestic currency in the absence of these preconditions.- See accession, unilateral, dollarization, secondary currency, parallel currency. – Cf. ECB Monthly Report of April 2006, pp. 97 ff. (in-depth presentation; p. 108: overview), Deutsche Bundesbank Monthly Report of December 2008, pp. 31 ff. (advantages and disadvantages of EMU for Germany).

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University Professor Dr. Gerhard Merk, Dipl.rer.pol., Dipl.rer.oec.
Professor Dr. Eckehard Krah, Dipl.rer.pol.
E-mail address: info@ekrah.com
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