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(EMU)
Monetary Union
A monetary union is an arrangement where several
countries have agreed to share a single currency
amongst themselves.
The European Economic and Monetary
Union (EMU) consists of three stages :
1. coordinating economic policy,
2. achieving economic convergence (that is, their
economic cycles are broadly in step) and
3. culminating with the adoption of the euro, the
EU's single currency.
• All member states of the European Union are
expected to participate in the EMU.
• The Copenhagen criteria is the current set of
conditions of entry for states wanting to join the
EU. It contains the requirements that need to be
fulfilled and the time framework within which
this must be done in order for a country to join
the monetary union.
Two main components to Monetary Union :
1. Exchange – rate union
• countries agree to permanently fixing of their
exchange rates with no margin of fluctuation.
• Creation of a single currency is the logical
outcome of such a situation emphasizing the
permanency of arrangement.
2. Complete capital market integration :
• All obstacles to the free movement of financial
capital between union members are removed.
• equal treatment to financial capital throughout
the members of the union.
EXPLICT REQUIREMENT
• Harmonised monetary policy
• Need of a central bank
yMonetary union
fixed exchange rate