ABSTRACT
A good starting point for discussing the advantages of a common currency is the report of the EC Commission (1990b), which made an heroic attempt to measure the potential benefits. The report speculates that the efficiency gain from removing currency uncertainty and exchange costs may be worth as much as 10% of the EU’s gross domestic product (GDP). Virtually all of this comes from the effect of a supposed reduction in the ‘risk premium’ on the cost of capital. Various other gains are adduced from the common currency-increased price stability (including through
enhanced credibility), more disciplined public finance and greater macroeconomic stability.
