The reason for the establishment of the EMU was that it was essential for the implementation of the European Union which was created to advance the economy and social unity among the people of Europe.
EMU is the agreement among the participating member states of the European Union to adopt a single hard currency and monetary system.
1998 – Jaques Delors who was president of the EU commission proposed a 3 stage plan to reach full economic union including the establishment of the European Central Bank.
Fixed exchange rate system.
European Central Bank (ECB)
The ECB administers the monetary policy of the EuroZone member states.
It’s primary objectives is to: maintain price stability – keep inflation low (preferably below 2%)
Key tasks is to: define and implement monetary policy for the EuroZone and conduct overseas foreign exchange operations.
IF a country wishes to join the EuroZone they have to fulfill the 5 Maastricht convergence criteria which are based around price, interest and exchange rate stability as well as making sure their public debt is under control and that their public finances are sustainable.
Bretton Woods:
The BW was established to avoid a repetition of the interwar experience with unstable exchange rates and the negative impact on world trade.
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