The sheer size of the economy in the monetary union will encourage the use of the Euro instead of the US dollar in trade and foreign exchange transactions. This process would further be accelerated by the fact that the use of a single currency will remove the not negligible cost of transactions. According to a study conducted by the IFO Institute in Munich, “the transaction costs for the inter-European currency management may be in the order of nearly 60 billion ECUs, or nearly 1% the GNP of the European Union”. Also it is likely that central banks will use the Euro rather than the US dollar in foreign exchange interventions. In turn, this will encourage non-EU central banks to switch an increasing proportion of their reserves into the Euro. This process will take time and the Euro will not usurp the role of the US dollar in the short term. However, the trend is likely to be persistent and eventually the current importance of the US dollar in the foreign exchange markets should be replaced by the joint importance of the US dollar and the Euro. One factor which will affect the speed of this change is the outlook for the Euro based on the fundamentals of the monetary policy of the European Central Bank (ECB). Moreover, the creation of a monetary union will prevent exchange rate volatility within the united Europe, the reason being that the Euro area as a whole will be much less dependent on foreign trade.
At the same time the system will strengthen Turkey’s links with the European member countries and will enable it to trade in the same currency as other members, a requirement for participation in the EMU. As far as the technical infrastructure is concerned, Turkey is ready to integrate itself into the EU. I would like to remind you that Turkey has been pursuing a series of liberalization policies since 1980 which are broadly in line with economic tendencies in the world. A wide range of policy measures were put into effect to achieve the restructuring of the economy. Changes in exchange rate and trade policies were the main instruments in this process. This program has brought a radical change in Turkey’s development strategy by increasing its dependence on market forces. In this context, the fixed exchange rate policy was replaced by the flexible one, restrictive control measures on imports were abolished and protection was reduced gradually. Similarly, foreign exchange transactions were thoroughly liberalized, free trade zones were established, foreign investment was further encouraged along with the privatization of public enterprises. As a result of these newly adopted policies, there have been spectacular changes in the Turkish economy, with exports and foreign investments having proved to be responsive to the structural adjustment process; within this process, the Turkish lira has become fully convertible and restrictions on capital movements have been effectively removed.