, the balance of power has gradually changed. these realities are not fully reflected in the institutional system that was built up at the end of world war two, in bretton woods and elsewhere ; the united states still has a major role in these institutions and so does europe. together with emu, this raises many questions about future representation in the international bodies. those of us who represent sweden have the important but difficult task of maintaining our country ’ s position in the international financial cooperation in a constructive way, despite several decades of relatively weak economic development. perhaps that should be a topic for a future discussion under the auspices of the institute of international affairs.

perspective more fruitful to translate it into a question of whether or not a country should join a monetary union with other countries. 1 in order to do this, advantages need to be weighed against disadvantages. when forming a monetary union, the member countries in effect lose some of their economic policy flexibility as they no longer have the possibility to individually adjust either their exchange rate, or their short - term interest rate. in turn, this means that a country - specific shock will be harder to handle for stabilisation policy. however, large asymmetric shocks occur fairly seldom, no more than a handful of times in the course of a century and as long as the shock – be it of internal or external origin – affects all countries within the monetary union, this poses less of a problem since the common monetary policy can respond to such a shock. if the monetary union also has a floating exchange rate, it will act as an automatic stabiliser. the principal gains to be anticipated from joining a monetary union come from an improved functioning of the economy and an increase in foreign trade. a common currency means greater price transparency and therefore stiffer competition in, primarily, markets for tradables. in a country with a floating exchange rate, small - and medium - sized companies often find it too costly to hedge against currency risk when exporting or importing. when joining a monetary union, the absence of currency risk provides a greater incentive to trade, an incentive that will grow with the size of the union. also, a common currency means that transaction costs for currency trading disappear. already mundell ( 1961 ) noted that “ [ e ] xcept in areas where national sovereignty is being given up it is not feasible to suggest that currencies should be reorganized … ” ( p. 664 ). however, when a country is weighing loss against gain, both are difficult to quantify. as for the gains, most estimates point to rather modest gains in transaction costs. nevertheless, recent research points to an increase in trade. the estimated effect ranges from “ modest ” to “ very sizeable ”, with the respective best estimates at 9 per cent and 40 per cent ( baldwin, 2006 and persson, 2001, respectively ). 2 it is my belief that as the current customs union in eac evolves into a common market and later a monetary union, intra - trade flows will continue to grow at a rapid pace. expressed as a percentage of their total exports, between 1991 and 2004