For the past 10 years I’ve been undecided as to whether Britain should join the European single currency, the Euro.
At first I was leaning towards the Euro, thinking that a level playing field of prices across Europe would encourage competition, making prices more transparent across a larger market, and therefore bring down prices in general.
Then, for a period, I felt that being constrained by a single interest rate for such a large and diverse economy would be harmful and having the flexibility of our own national currencies would assist us in adapting to any challenges we face.
However, since the start of the credit crisis and as the pound falls against a basket of currencies, I’m now leaning back towards the Euro. I’ve realised that governments (particularly our current one!) are too often tempted to print money to inflate their way out of a debt crisis, thus punishing the thrifty and rewarding the reckless.
I think that stability should be the most desirable attribute of a currency. It allows good businesses to concentrate on what they do best, rather than having to worry about the constantly fluctuating value of their imports / exports / savings. It allows people to plan knowing that they can buy a fixed number of goods with their income, and that they can set aside enough for retirement.
So the decision between the Euro and the pound, it would seem, boils down to a simple choice: Stability versus Flexibility.
As Britain and our European neighbours deal with the recession, it’ll be interesting to see which performs best. Countries such as Ireland, Spain and Greece may prefer lower interest rates than the Euro affords them, but if they perform relatively better than Britain does in the medium term, it would suggest stability is more important than flexibility.
Or to give Stability its proper name Coercion and Flexibility its – Freedom.
This argument transcends national interest and must be looked on from a higher level.
There is no question Freedom is better in the long term it’s just this type of fear which destroys it.
The population of the UK must be economically competitive if we are not as a nation others will not want our currency that is the nature of the free market.
We need to work harder and have needed too for a long time.
The most efficient markets are those in which prices are transparent. A stable global currency would expose inefficiencies in individual countries more quickly than having national fiat currencies who’s value can be coerced by a government.
Interesting piece from Alan Greenspan, about the ultimate stable currency, Gold:
http://www.constitution.org/mon/greenspan_gold.htm
“Under the gold standard, a free banking system stands as the protector of an economy’s stability and balanced growth… The abandonment of the gold standard made it possible for the welfare statists to use the banking system as a means to an unlimited expansion of credit… In the absence of the gold standard, there is no way to protect savings from confiscation through inflation.”
This is why I would say a stable currency affords it’s holders more freedom than a “flexible” one that can be manipulated for political means.
My point is that in the absence of the gold standard, the Euro might be our least bad bet, as I believe the ECB is less susceptible to political interference than either the dollar or the pound, since it works for a number of countries with competing interests, and should therefore prove to be a better store of value in the long run.
Of course, only time will tell.