Economics Exchange Rate Systems Questions
A currency union is a form of exchange rate system where multiple countries agree to use a single currency as their legal tender. In a currency union, the participating countries give up their national currencies and adopt a common currency, which is typically managed by a central bank or a monetary authority. This means that the exchange rates between the member countries are fixed and there is no need for currency conversion when conducting trade or travel within the union. Currency unions aim to promote economic integration, facilitate trade, and enhance stability among member countries. Examples of currency unions include the Eurozone, where the euro is used by 19 European Union member states, and the Eastern Caribbean Currency Union, where the Eastern Caribbean dollar is used by eight Caribbean countries.