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  • Heng Kim
  • Posted Articles: 13
  • Last Posted: 2017-05-27 02:00:07
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Certain EU Countries Still Love Their Own Currencies

2017-05-27 02:00:07

Certain European such as Poland and Sweden still use their own currencies. Their reason? It is more than patriotism. Currently, the EU has 28 member countries. Nine states are excluded in the bloc’s monetary union. All other EU countries, except Britain and Denmark, hold the right to defer accepting the euro as their official legal tender. Here’s why.

They seek to be independent in terms of bolstering or devaluing currency. Economic challenges or problems are inevitable. We attribute this to lowered exports, high inflation, high salaries, or lowered industrial output, some of the most common situations within an economy. Countries have no other choice but to contend with such instances. Hence, a nation’s currency is depreciated. Non-euro countries can do that as necessary, unlike those in the region since their central bank determines whether a nation under its helm needs to devalue their currency or not. This move makes exports more competitive and less costly as well as spurs offshore investments.

Also, they want to hold power in formulating economic and monetary rules. The ECB decides on all rules for all EU countries. The British government may have been able to regain its ground following the financial collapse around the globe by swiftly slashing interest rates and unveiling an asset purchasing program during that time. Conversely, the central bank waited quite long to produce money to introduce its quantitative easing program.

Their own central banks can serve as the lender in case of emergency. This is applicable if a certain non-euro nation has a considerable amount of debt. In the event of increasing bond yields, these monetary authorities begin purchasing the notes which can boost liquidity in the financial markets.

When it comes to specific difficulties, they resolve it their way. The eurozone cannot dictate them what they should and should not do. Greece, for instance, is included in the ECB. Therefore, this country has to follow the existing regulations and wait for its mandate before deciding on any issue such as its debt obligation.

The inflation threat is there, too. Since these nations are not bound by the ECB, they hold the prerogative to curtail the rise or fall of inflation within an economy. The normal response to high inflation is a rate hike. Eurozone nations, however, cannot raise rates right away.