The UK and Euro
To what extent might UK firms benefit from a decision by the UK government to join the Single European Currency?
The single European Currency is the currency used by the institution of the EU and it’s the official currency of the Eurozone consisting 18 of the 28 member states. On 1 January 1999, the Euro was introduced as the single European currency, but today, the UK is still using the Sterling Pounds, and if the UK join the single European Currency, there may be some advantages and disadvantages for the UK firms. If we share a currency with the rest of Europe, there will be no need to pay transaction costs of changing currencies. For businesses which have high transaction costs, it will be a huge benefit for them as they can lower their cost of production, which allows them to maybe lower price and be more competitive in the international market, and if an individual firm is more competitive than other ones in the market, in a long term this will dominate other firms in the market because they can’t compete with the low cost of production, making that firm to be a monopoly or left with just a few firms in the market, and allowing them to grow rapidly by having all the sales in the market and creating barrier to entry for the market. So for example if the UK is using the Euros, Jack Wills or Topman/Topshop will be able to reduce their cost of production because they export a lot of clothing to the Europe, so if they don’t have to pay the transection cost, it will lower the total cost, which provides better profit margin, and will allow them to compete with other international clothing brands such as Abercrombie and Fitch and Hollister from America. Second, it provides better price transparency. At the moment, comparing prices between countries is difficult because there are exchange rates which make the prices different. If the UK is using the single European currency, all prices would be expressed in one currency. Prices would be transparent, and it will
The single European Currency is the currency used by the institution of the EU and it’s the official currency of the Eurozone consisting 18 of the 28 member states. On 1 January 1999, the Euro was introduced as the single European currency, but today, the UK is still using the Sterling Pounds, and if the UK join the single European Currency, there may be some advantages and disadvantages for the UK firms. If we share a currency with the rest of Europe, there will be no need to pay transaction costs of changing currencies. For businesses which have high transaction costs, it will be a huge benefit for them as they can lower their cost of production, which allows them to maybe lower price and be more competitive in the international market, and if an individual firm is more competitive than other ones in the market, in a long term this will dominate other firms in the market because they can’t compete with the low cost of production, making that firm to be a monopoly or left with just a few firms in the market, and allowing them to grow rapidly by having all the sales in the market and creating barrier to entry for the market. So for example if the UK is using the Euros, Jack Wills or Topman/Topshop will be able to reduce their cost of production because they export a lot of clothing to the Europe, so if they don’t have to pay the transection cost, it will lower the total cost, which provides better profit margin, and will allow them to compete with other international clothing brands such as Abercrombie and Fitch and Hollister from America. Second, it provides better price transparency. At the moment, comparing prices between countries is difficult because there are exchange rates which make the prices different. If the UK is using the single European currency, all prices would be expressed in one currency. Prices would be transparent, and it will