The United Kingdom (HM Treasury, 1989) has recently proposed an ‘evolutionary’ approach to European monetary union, intended as an alternative to the recommendations of the Delors Report. In addition to generally urging a more gradual and cautious approach to fundamental institutional reforms, the UK proposal argues in particular that it is undesirable to move to a single European currency, primarily because of the extent to which this would place both monetary and fiscal policy in the hands of supranational agencies (such as the proposed European System of Central Banks). Instead, it argues, the objective of ‘stable prices and currencies’ can be achieved, while preserving national control over monetary and fiscal policy, by ‘allow[ing] currencies to compete to provide the non-inflationary anchor in the European Monetary System’. The existing European Monetary System's ‘reliance on many currencies’ is said to be its ‘strength’ rather than a liability, because of the need for ‘competition’ between currencies to force convergence of member states' monetary policies on low rates of money growth; ‘by eliminating both competition and accountability from members' monetary policies’ it is argued that ‘the Delors Report version of monetary union risks producing a higher inflation rate in Europe (p. 9).’

The UK statement argues that the removal of barriers to trade in financial services, as part of Stage 1 of the process of economic and monetary union agreed to by the European Council, will greatly further the extent of competitive pressures towards coordination on noninflationary policies, by ‘increas[ing] the amount of currency substitution. Greater use will be made of low inflation currencies at the expense of high inflation ones in both transactions and deposits’ (p. 3).