This came up in conversation between my mom and I talking about Euros and how cool that is to me (Canadian). I then wondered why we can’t just have that everywhere and all she could say was “it wouldn’t work, what about less profitable countries” and I said “they’d just make/have less?” She did not like that answer and I really wanna know the real reason on why that wouldn’t work bc in my mind since we made up money why can’t we just make up how new money works???
Please explain like a teacher explaining why a kid can’t share 3 m&ms with 28 people
In: Economics
Monetary policy is generally best determined at the country level, and a large group currency like the euro comes with some huge downsides that are not always apparent right away.
We saw the big downside of a single currency when Greece had financial issues years ago. If Greece had its own currency, the financial crisis would have weakened the it’s currency relative to that of its neighbors. While this isn’t great, it acts as a sort of cushion. A weaker currency means that exports are cheaper. This means that as a country gets in a worse financial position, other countries want to buy more of it’s goods, helping to raise the economy.
When you have single currency, the whole eurozone changes as one. This means if one eurozone country has issues, there is no way cushion, and downturns will be worse.
On the opposite side, a single country gives huge benefits to stronger economies like Germany. Normally, if your economy is very strong, your currency will strengthen and decrease your exports. But again, even though Germany has been doing well, that natural swing in relative currency values does not happen.
Thus, you can kind of think of a single group currency as almost a wealth transfer from the poorest countries to the richest countries in a way that makes crises worse.
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