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A New Money for Europe: The Meaning of the European Currency Unit
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18188 |
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Section : |
MODERN THOUGHT
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| Issue
Date : |
11 / 1990 |
5,429 Words |
| Author
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Graeme B. Littler and Jeffrey A. Tucker
Graeme B. Littler is senior editor of Central Bank Watch, a
newsletter of The American Banker. Jeffrey A. Tucker is a
fellow of the Ludwig Von Mises Institute. |
It took years before news of “Europe 1992” reached the United States. Now that is has, American businesses, banks, and policy-makers are wondering what 1992 implies for them. Sparse attention, however, has been given to the most explosive and radical aspect of the “New Europe”: the prospect of a brand-new currency and a European-wide central bank.
The new currency will likely be called the European Currency Unit (ECU). The ECU already exists: American Express offers a card denominated in ECUs; in London you can take out a home mortgage in them. And in 1988, the ECU became the fourth largest medium of exchange in the world financial markets, falling just behind the U.S. dollar, the Japanese yen, and the German mark. It is well known in investment, financial, and government circles.
In its present state, however, the ECU cannot be called a full-fledged currency. There are no ECU bills or coins in circulation and it is not widely used in consumer markets.
Still, the ECU is more than a fiction of the balance sheet. If all goes as planned, within the next five years, the ECU - a composite of 12 currencies - may be used in hand-to-hand trading, eventually replacing all other European currencies and creating the third-largest currency block in the world economy. It will be a hot commodity of Europeans and Americans who will appreciate a common currency when they travel from one country to another. They will one day be able to forego the bothersome ritual of exchanging German marks for British pounds, or pounds for Italian lira.
Only ten years ago the ECU was little more than a technical accounting device used by official government institutions. What transformed the ECU? How did various institutions - governmental, banking, corporate - assist in the ECU's remarkable success? What does the future hold for the ECU? And will its success imply a growth or a reduction in the power of government over the European economy?
Background
The European Community (EC) first conceived of an economic and monetary union of the six major European nations in 1969. The idea grew out of the desire to encourage cooperation among nation-states to control volatile exchange rates, something national governments cannot do when they act alone.
In 1970, a group
...
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