What is a key benefit of common currency in trade?

A key benefit of a common currency in trade is that it reduces exchange rate risk. When businesses and consumers operate within an environment where a single currency is used, they do not have to worry about fluctuations in exchange rates that can occur when using different currencies for international transactions. This stability allows for more predictable pricing and less uncertainty in the cost of goods and services.

Additionally, reducing exchange rate risk can encourage businesses to invest more freely in trade across borders, knowing that they will not be adversely affected by sudden changes in currency value. This can lead to increased trade volume and economic integration among the countries that share the common currency, fostering stronger economic ties and cooperation.

In contrast, the other options do not accurately capture the benefits of a common currency. While increased interest rates can occur due to various economic conditions, they are not a direct result of a common currency. Encouraging local currencies would actually contradict the concept of a common currency. Lastly, imposing high transaction fees is generally associated with using different currencies rather than a common one, as it simplifies transactions and usually reduces costs.