The Impact of the Euro on Banking in the UK
Before and After its Introduction
Introduction
This paper presents the research proposal on the impact of the Euro to the United Kingdom (UK). Specifically, this research, will discuss the effects of the Euro on banking in the UK before and after its introduction. This research proposal includes the presentation of the topic, the background of the study, the proposed objective of the study, statement of the problem, scope and limitation, overview of the methodologies to be used, and the significance of this study.
Background of the Study
The parameters of the workings of the European Economic and Monetary Union (EMU) have been largely laid down in the Treaty of Maastricht, which was ratified in 1993 by all European Union (EU) members. The most notable feature of EMU is the introduction of the single currency, the euro, which in contrast to its predecessor, the ecru, is an autonomous currency rather than a composite currency (Krakow, 1999). On 1 January 2002, the euro became the sole legal tender in circulation in all countries forming part of the European Union (EU) with the exception of Sweden, Denmark and the UK (Misfit, 2003).
The introduction of a single currency requires the existence of a single monetary authority to manage it and conduct the common monetary and exchange rate policy. The euro is managed by the European Central Bank (EBB), which maintains price stability in the euro area. Besides conducting the monetary policy of EMU, the EBB is also responsible for the implementation of exchange rate policy, which is formulated by the Council of Ministers.
Specifically, EMU and the single currency prevent exchange rate turbulence within the unified market and reduce economic uncertainty for the consumer and business through the elimination of exchange rate uncertainties. Furthermore, transaction costs in trade activities are reduced and price transparency across EMU participants is enhanced, thus contributing to greater competition for the benefit of the consumer. These factors benefit individual consumers and producers, as well as the entrenchment of a favorable and stable economic environment within which trade flourishes (Krakow, 1999).
Large and small companies trading into the euro zone from other countries outside it now face new business risks as a result of EMU. Successive waves of mergers and acquisitions affect banks and their corporate customers as a result of EMU. In the longer term the nature and role of corporate banking are likely to be transformed. Some of these potential changes can only be described as revolutionary (Newsletter Interactive, 2001).
Many businesses in the UK, Denmark, and Sweden, as well as throughout Central and Eastern Europe, have yet to appreciate how fundamentally the euro could affect their operations (Newsletter Interactive, 2001).
Objectives of the Study
The primary objective of this study is to investigate as to what extent the introduction of the Euro affects UK’s economy. For this study, the focus will be its impact on the banking sector before and during the implementation of the Euro. Literature suggests that since EMU introduces the Euro, a series of acquisitions has taken place, and has negatively affected banks from countries outside the Euro. With this, the researcher will examine how the UK banking sector is coping with the challenges posed by countries under the Euro. The researcher will conduct an interview to address these objectives.
Statement of the Problem
This study will attempt to answer the following questions:
1. What are the major effects of the Euro on banking in non-Euro countries, specifically The UK?
2. How is the UK banking sector responding to the increasing competition brought about by the Euro?
Scope and Limitation
This study will only cover the discussion and examination of the impact of the Euro on banking in the UK. The outcome of this study will be limited only to the data gathered from books and journals on the effect of the Euro to the European economies and from the primary data gathered from the result of the interview that will be conducted by the researcher.
Overview of the Methodology
For this study, primary research and secondary research will be used. Primary research will be conducted by interviewing UK bank managers. Here, the interviews will be used to provide qualitative insights into the data collected. The secondary sources of data will come from published articles from Business journals, books and related studies on banking and the Euro.
For this research design, the researcher will gather data, collate published studies from different local and foreign universities and articles from books journals; and make a content analysis of the collected documentary and verbal material. Afterwards, the researcher will summarize all the information, make a conclusion based on the null hypotheses posited and provide insightful recommendations based on the findings.
References:
Krakow, G. (1999) EMU and the introduction of the Euro: macroeconomic implications for the Cypriot economy. Available at [www.centralbank.gov.cy]. Accessed [06/10/03].
Levene, P. (1999) London’s role as financial center tied to Euro.
Mifsud, A. (2003) EURO: The Impact on the Financial Services Sector. Speech delivered in the Institute of Financial Services Malta Presentation of Banking Certificates and Diplomas. University of Malta. Available at [www.ifsmalta.org]. Accessed [06/10/03].
Strategic Focus on The Impact of EMU on Corporate Banks and their Customers 2001 Newsletter Interactive Ltd. Informal. Available at [www.newsletterinteractive.com]. Accessed [06/10/03].
Credit:ivythesis.typepad.com
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