<h3>How does a country decide which currency it must use?</h3>
Just wondering, how does a country decide which currency to opt for?
For example, East Timor has US Dollar. Canada has Canadian Dollars. Canada could have opted for US $ . So what are the real advantages of having your own currency?
<strong>East Timor best answer:</strong>
<p><i>Answer by PrivateBanker</i><br/>When you have your "own" currency you can control policies that affect the value of the currency - for example, monetary and fiscal policy. When you use the currency of another country you are subject to the vagaries of that country's monetary and fiscal policy, as well as, to some degree, the overall health of that country's economy, as measured in GDP, inflation, etc.
By treaty, many countries in Europe use the euro as a common currency. Many now doubt the wisdom of the move from individual country currencies to a common currency, as the fiscal policies of some of the countries (i.e. Greece) have led to a (Greek debt) crisis that has threatened the value of the euro. More responsible economic partners in the eurozone (i.e. Germany) thus suffer the effects brought about not by their own making, but by the making of other countries. Additionally, with a common currency, the individual countries have no control over their own monetary policy - which is left to the European Central Bank, theoretically, although there are other influences/factors.
As an example...during the recent recession in the US, the Federal Reserve (the "central bank" of the US) wanted to lower interest rates to spur borrowing and boost the economy. To do so, in essence - I don't want to get too far into the weeds here, they increase the money supply - a monetary policy move. If you are not in control of your own currency, you don't have this type of option, so you wouldn't have this kind of tool to address such things as economic slowdowns (you'd want to increase the money supply) or runaway inflation (you'd want to decrease the money supply).
Hope I didn't get too far off track for you...</p>
<p><strong>East Timor Indonesian Destruction of Same</strong>
<img alt="East Timor" src="http://farm6.staticflickr.com/5162/5247621147_700d528ce9.jpg" width="400"/><br/>
<i>Image by <a href="http://www.flickr.com/photos/56880002@N04/5247621147">john.hession</a></i>
This photo of the main market area in Same East Timor is an example of the destruction of property and infrastructure that is still visible today.</p>
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