A monetary union: countries that share one currency and one central bank.
A monetary union, step by step
A common market
Free trade, a common external tariff, free movement of labour and capital.
One currency
Members give up their own money: the euro is used in 20 EU countries.
One central bank
The European Central Bank sets one interest rate for all of them.
The points to remember
- Define it like this: "A monetary union is a group of countries that share a common currency and a common central bank."
- The euro area is the main example.
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A monetary union is a common market plus a shared currency.
Common market
- Free trade and a common external tariff.
- Labour and capital move freely.
- Each country keeps its own currency and interest rate.
Monetary union
- Everything in a common market.
- One currency for all members.
- One central bank and one interest rate.
The points to remember
- Members lose their own interest rate and exchange rate.
- Distinguish: say what both share, then what the union adds.
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A Paper 2 definition in this shape could appear for 2 marks.
Text C says that the country is preparing to join a monetary union.
Define the term monetary union.
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