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Monetary Policy and Its Implications in Belgium - Research Paper Example

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The currency is accepted in 17 countries belonging to the European Union. The currency came with the signing of the Maastricht treaty (Mulhearn & Vane 2008). The treaty had the guidelines on how the countries would…
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Monetary Policy and Its Implications in Belgium
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Monetary Policy and Its Implications in Belgium

Download file to see previous pages... This meant that the signatories’ domestic currencies would not fluctuate against the Euro and each other. The Euro was initially launched as electronic money and eventually became a legal tender on 1st January the year 2002. The European Central Bank was tasked with the responsibility of implementing monetary policies on countries using the Euro (Gunyé 2004).
One of the main reasons why the Euro was introduced was to provide a common currency that could be used all over Europe. It is important to note that European countries are small and trade with each other. A common currency would make trade between the European countries easier. This eliminated exchange rates that were a common hindrance to trade among the countries. The common currency was expected to be stronger than other currencies of the individual countries and this would have increased the competitiveness of exporters using the Euro.
Since the Euro was incepted in the year 1999, it has remained fairly stable against the US dollar. The euro in 1999 would buy the US dollar at $1.18. This figure has since risen to $1.38. The lowest amount that the Euro has ever bought the US dollar is $0.82 and the highest ever level the Euro has ever bought the dollar remains at $1.60.
Some of the member countries have been experiencing high labor costs and this has been affecting their export competitiveness in the market. In such a case a currency would devalue to solve the scenario. It is, however, impossible to devalue the Euro and this has led to major problems for countries like Greece, Portugal and Italy. This is due to the fact that they are experiencing a fall in exports.
It is widely thought member countries are protected from financial crisis. However, this is not the case as Greece is experiencing a major financial crisis. The member countries are given less incentives to implement structural reform (The ...Download file to see next pagesRead More
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