LETTER:When to join a single currency

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From Mr Julian Malins, QC

Sir: David Marsh's article ("Britain must join the game", 9 June) was timely but too sanguine. There is only one problem in moving to a single currency in the European Union and that is the fixing of the redemption rates. All the other "problems" (which are the only ones being debated) are in fact the consequences of getting the redemption rates wrong.

There are two ways of fixing the redemption rates - the slow and the fast. The slow method is the Exchange Rate Mechanism of the European Monetary System, which, in the case of sterling, failed. The fast method is simply to replace national currencies overnight with a new currency, which is legal tender in all the jurisdictions, at redemption rates agreed between the existing central banks and the new European Union Bank.

While Britain has fallen out of the slow method, Germany, France and the Benelux countries are discussing whether to go for the first method, just for themselves. This is practicable if Germany, as happened with the D Mark and Ost Mark on re-unification, agrees redemption rates obviously favourable to the others and bears the immediate costs in return for the long-term benefits.

If this occurs - and it is probable, not merely possible - God help the other member states. The world will want reserves in the new currency and not, for example, in sterling. The pound will collapse and interest rates take off. The damage to our economy - to say nothing of the loss of most of the City's business to Frankfurt - would be staggering. The price thereafter of coming into the new currency will be exorbitant.

Whatever the short term political difficulties with some of its backbenchers, HMG must ensure that if a few member states take the fast route to a single currency, we are one of the few.

Yours faithfully,

JULIAN MALINS

Brick Court Chambers

London, WC2

9 June

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