These proponents of the single currency said that a single currency was needed to facilitate trade and that a single currency would promote efficiency by permitting price comparisons. EMU advocates in Britain argued that these economic gains were worth the political sacrifices � the loss of sovereignty over monetary affairs and over other economic policies that would result from joining the EMU. But Britain already had the free trade advantages of being a member of the European Union. I argued that there were in effect no net economic gains � more likely a net economic loss -- to compensate Britain for the political costs of joining the Economic and Monetary Union. Certainly there is nothing in economic theory or in historic experience to suggest that international trade requires a single currency. The argument that one market requires one money was the kind of political slogan that frankly bothered me as an economist. I was also not impressed by the idea that a single currency would facilitate price competition that would improve market efficiency. The housewife in Madrid buys her bread locally. So knowing what bread costs in Berlin or Rome is irrelevant. The industrial buyer who may already shop for steel or chemicals in different national markets could easily compare prices stated in different currencies with the help of a pocket calculator. In contrast, the economic costs of a single currency are very real. A single currency means a single monetary policy and a single exchange rate. A single monetary policy for a group of heterogeneous countries that experience different shocks cannot be optimal � the problem is that, when it comes to monetary policy, one size cannot fit all. If monetary policy has to consider unemployment as well as inflation, the average cyclical unemployment rate will be higher with a single currency. A single currency also means that a country that experiences an increased trade deficit caused by a reduced demand for its export products cannot be helped by a natural � i.e. automatic -- exchange rate adjustment.
It's worth reading the whole thing.