Complete 34 page APA formatted essay: Monetary Policy A-level.Download file to see previous pages Hence the adoption of the Eeuro area framework that has been designed to apply to a number of countrie

Complete 34 page APA formatted essay: Monetary Policy A-level.

Hence the adoption of the Eeuro area framework that has been designed to apply to a number of countries, which have pooled responsibility for certain, functions in EMU, while the UK framework applies solely to the UK. (Romer, D., (1993)

The introduction of the Euro led some countries to consider the adoption of some form of exchange rate target and to use the Euro as an anchor currency. This therefore is the obligation of the European central bBanks obligation. In principle, there might be two complementary reasons for doing so. Some countries might decide to pursue such a policy because the Euro area is a major trading partner. In this case, exchange rate stability vis--vis the Euro is regarded as desirable to foster trade and commerce. Other countries might want to use the Euro as an anchor currency to basically import the Euro area's stability-oriented policies and environment. This is particularly relevant for some of the accession countries. At the moment, the Euro already plays some role as an anchor currency in 56 countries, which together represent 4% of world GDP. (Alesina, A, . (1988). The s

Solutions adopted range from very strict, - or even full - links to the Euro (for instance, the use of the Euro as legal tender, or other forms of "Eeuroisation") to looser forms of anchoring (such as peg arrangements). The Eurosystem neither pursues the internationalisation of the Euro as an independent policy goal, nor does it foster or hinder the process. In other words, if countries outside the Euro area want to adopt an exchange rate target featuring the Euro, they are free to do so, provided that such an arrangement does not impose any obligations on the Eurosystem.