1. What are the main advantages of the U.S. having its own currency as compared to European countries that use the Euro?
2. Given the current strength of the U.S. dollar, how much longer do you think the U.S. government can continue borrowing large amounts of money?
Currently, the use of Euro as a single currency in European countries is created several disadvantage in comparison to U.S. that has its own currency. This paper will focus on the advantages that U.S. enjoys due to use of its own currency with the consideration of disadvantage of Euro. This paper will also analyze the limit to which US government can borrow fund with the current strength of U.S. dollar.
Advantages for U.S. to Having Own Currency
There are fifteen countries that constitute European Union and use a single currency euro. In contrast, U.S. uses its own currency that is termed as Dollar. With the use of its own currency, U.S. enables to make and use Dollar in less time and cost effectively. On the other hand, initially European countries were required to transmit 15 countries' currencies over to a single currency that created significant cost. European countries were tended to spend billions not only to produce the new currency, but also to change in accounting systems, vending machines, software, printed materials, signs and other type of device that accepted Euro currency. The use of common currency occurred huge debt that is affecting the Euro economy till today (Hamori & Hamori, 2009). The use of own currency helps U.S. to strengthen the overall economy at greater extent.
On the other hand, due to own currency, U.S. is enabled to adjust interest rate by encouraging investment and large consumer purchases effectively. It provides an effective floor to U.S. through which it takes significant actions to balance the economic activities. In contrast, with the use of euro, this kind of interest-rate adjustments is not possible with individual countries. Currently, interest-rate adjustments are used by U.S. and several other countries to recover economy, but due to use of Euro, this form of recovery is lost. European Central Bank (ECB) is accountable to control interest rate for European countries (Gillespie, 2007).
In addition, with own currency, U.S. is enabled to make significant adjustments in exchange rate as per the need of economic activities. In case of trade deficit by adjusting exchange rate, U.S. enables to devalue currency immediately that makes country's exports less expensive in relation to imports. This provides a significant way to reduce trade ...
The solution discusses the monetary policy regarding the U.S. currency.