Foreign currency – The Euro and the UK

December 6th, 2011

Joining the Euro and changing the British Pound to a foreign currency, was once a contentious issue in the UK. Recently, it seems that joining the Euro has slipped from people’s attention and there is no more enthusiasm about joining. Many people thought that joining the EU wasn’t worth it, as the UK economy was doing well without becoming part of the European Union. Since the recent economic decline, people have been debating whether joining the EU now would be a viable move. Some say the UK shouldn’t join the Euro as the recession makes it even less desirable to join. Here are a few reasons in support of that view.

The UK may have its own problems, but they are not caused by having its own currency. The Euro is currently entering into a recession therefore making the euro an even less favourable foreign currency.

Secondly, the UK is now recovering from a difficult recession. It is therefore, vitally important that the UK has independence over its monetary policy and cut interest rates if necessary for the economy. The UK are able to watch their own money exchange, especially with many countries in the Euro requiring bailout help, they are able to financially watch their own backs.

One of the major disadvantages of joining the Euro is that the UK will be required to have a common monetary policy. The UK interest rates will be set by the European Central Bank dependant on what it deems fit for the whole of the Eurozone area. This means that the ECB interest rates may not be suitable for the UK. If the UK economy had not recovered from the recession and had joined the EU, and the EU had recovered from their recession first, they could possibly be harmed by a set interest rate which would be more suited to countries not in a recession.

Interest rates also have an impact on the UK housing market. With the nature of the UK housing market being extremely sensitive to interest rates, the slightest increase in interest rate has a big effect on consumer spending. Therefore it is even more important that interest rates aren’t unsuitable to the UK economy.

The issue of the UK joining the Euro will probably bring about debate again soon. Nevertheless, the UK works well on its own being one of the biggest players in the foreign exchange market without being part of the Euro. The foreign currency of the EU may come to England, only time will tell.

Leave a Comment