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(PDF) The Economic Integration

   

Added on  2021-04-24

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Running head: MONETARY AND ECONOMIC INTEGRATIONMonetary and Economic IntegrationName of the Student:Name of the University:Author note:
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1MONETARY AND ECONOMIC INTEGRATIONPros and cons of monetary integration Monetary integration refers to the incidence of two or more countries adopting the sameor single currency without having any further integration (Hefeker, 2018). This is also known asmonetary union or currency union. According to Tsoukalis (2017), monetary integrations canalso lead to the existence of a fixed mutual rate of exchange for different currencies, whichwould be controlled by a single central bank. There are two necessary components of monetary integration. First is the exchange rateunion, in which a certain section of the exchange rates bear a fixed relationship with each otherwhile the rates vary with non-union currencies. Second is the scope of convertibility, whichrefers to the non-existence of all types of the exchange rate controls irrespective of the capital orcurrent transactions within the exchange rate zone (Kruse, 2014). The most prominent exampleof monetary integration is the creation of EMU and Euro zone, where many independent nationsof Europe have adopted a single currency Euro. The pros of monetary integration are: It reduces the transaction cost incurred by the traders and the travelers. Conversion ofcurrencies leads to some amount of losses in terms of real value of the currencies(Hefeker, 2018). It helps in reducing the interest rates in the participating countries, and that attractsmore investment. Lower transaction costs help in bringing more cross borderinvestments.
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2MONETARY AND ECONOMIC INTEGRATIONMonetary integration brings exchange rate stability and thereby reducing differences inthe price across the region. Price comparison becomes more efficient and steps can betaken accordingly to reduce disparities (Nieboer, 2014).It leads to free movement of labor by ensuring a free mobility area. Common currencyhelps the workers to move between the countries without any regulation, which helps inreducing the unemployment. Countries get access to larger markets and thus get the scope for increasing income. The cons are: The countries lose monetary independence as they cannot take independent decision onmonetary policies even during any crisis. Costs of adopting a new currency are huge, especially for a less developed country. There are negative effects of cross border fiscal policies. When the neighboringcountries impose strict fiscal policies of reducing expenditure and investment, it affectsthe other country due to common currency (Masciandaro & Romelli, 2017). Pros and cons of economic integrationEconomic integration is the process of elimination of reduction of the trade barriersamong the economically independent nations (Moon, 2017). This type of integration aims toreduce or eliminate the barriers regarding the flow of trade in goods and services, labor andcapital. It also establishes certain factors of coordination and cooperation among the participatingcountries. Economic integration is a dynamic procedure, which encourages the member countriesto become one entity over time (Baier, Bergstrand & Feng, 2014). Pros of economic integration:
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