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Currency unions and the eurozone

Say what a country gains and gives up by sharing a currency, and what the balance depends on

Key terms
Currency union
A currency union, or merged currency, is an arrangement in which a nation shares a common currency with one or more other nations.
Hard peg
A hard peg is an exchange rate policy in which the central bank sets a fixed and unchanging value for its currency.

A shared currency removes exchange rate risk between members

A merged currency eliminates foreign exchange risk altogether. A German firm selling to France knows the euro is worth the same in both countries, just as nobody in London worries about the exchange rate when buying from Manchester.

Under floating rates that risk is real. Swings of roughly thirty per cent between the dollar and the yen have forced firms to rework their export and import plans, and where trade is a large share of GDP, as in many smaller economies, such movements can rattle the whole economy.