Currency Unions

Alberto Alesina, Robert J. Barro

NBER Working Paper No. 7927
Issued in September 2000
NBER Program(s):   IFM

What is the optimal number of currencies in the world? Common currencies affect trading costs and, thereby, the amounts of trade, output, and consumption. From the perspective of monetary policy, the adoption of another country's currency trades off the benefits of commitment to price stability against the loss of an independent stabilization policy. The nature of the tradeoff depends on co-movements of disturbances, on distance, trading costs, and on institutional arrangements such as the willingness of anchor countries to accommodate to the interests of clients.

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Published: Alesina, Alberto and Robert J. Barro. "Currency Unions," Quarterly Journal of Economics, 2002, v107(2,May), 409-436.

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