There was a considerable amount of speculation, immediately after the elections in the UK in May this year, that the Labour government would move swiftly to organise a referendum to test the views of the British electorate on whether or not Britain should join the European Monetary Union and adopt the euro in place of the British pound. That this hasn't yet happened is probably due to the fact that the Treasury will find it hard to demonstrate that the British economy now meets the five economic tests set by the Chancellor of the Exchequer in 1997 as being prerequisites for entry. In particular, the requirement for clear and unambiguous evidence of current and sustainable convergence of the British economy with that of the rest of the "eurozone" presents a very high hurdle.
Nevertheless, it is appropriate for the Jersey authorities to give some thought as to the Island's position in the event that Britain does adopt the euro. Jersey has been in currency union with Britain for centuries. (Following Orders in Council, the pound sterling was adopted as sole legal tender in 1834, before which time several European currencies were widely circulated and accepted in the Island.) It is logical to assume, therefore, that Jersey would seek to continue in monetary union, through a similar adoption of the euro. Certainly, if Britain was to adopt the euro, virtually all of Jersey's trade in physical goods and a majority of the movement of people would be with eurozone countries, so having a common currency would make economic sense.
It is not clear, however, whether the Island's government will need to obtain the consent of the European Central Bank before it adopts the euro as its legal currency. Issues like this will have to be resolved soon, if the Island is to be in a position to make a swift decision following any conclusion of the debate in Britain.
Some commentators have suggested, as an alternative, that Jersey should establish its own currency. To do so, the States of Jersey would have to create the equivalent of a central bank, which would have responsibility for protecting the currency against speculative flows. The foreign currency reserves that would have to be held to undertake this task probably make this a wholly unrealistic option.
Other commentators have suggested that the Island might adopt another foreign currency - for example, the US dollar. However, given the current external trading patterns within the Island, the economic justification for this course would be weak.
In the meantime, the new euro cash notes and coins will from the beginning of 2002 be in circulation throughout the eurozone. Although neither Jersey nor Britain have joined the EMU, these euro notes will probably be used widely in shops and businesses in the Island, especially those that in the past have accepted French Francs and other European currencies as an alternative to sterling pounds. The notes and coins of the old legacy currencies will cease to be legal tender over a fairly short period of time (which differs from country to country within the eurozone), heralding the beginning of a new monetary era.
Mr Christensen is Managing Director of Volaw Trust & Corporate Services Limited
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