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Costs and benefits of unilateral euroization in central eastern Europe

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  • D. Mario Nuti

Abstract

Countries unable or unwilling to join a monetary union can replicate most membership effects unilaterally through either a currency board or the formal replacement of domestic currency by that of the Union. Potential benefits include lower transaction costs, lower interest rates, and lower exposure to speculative attacks. Costs include initial reserves, inadequate response to asymmetric shocks, loss of seigniorage, no lender of last resort. Expected costs and benefits have probably been exaggerated. Net effects depend primarily on the degree of monetary, real, and institutional convergence. Positive net advantages will accrue to countries that are either already converging, or wish to use a single currency to speed up convergence — especially if small. There is no legal or economic justification for EU aversion to unilateral euroization in accession candidate countries. JEL classification: F33, F36, E58, P33.

Suggested Citation

  • D. Mario Nuti, 2002. "Costs and benefits of unilateral euroization in central eastern Europe," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 10(2), pages 419-444, July.
    • Handle: RePEc:bla:etrans:v:10:y:2002:i:2:p:419-444
    DOI: 10.1111/1468-0351.00119
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    JEL classification:

    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • P33 - Political Economy and Comparative Economic Systems - - Socialist Institutions and Their Transitions - - - International Trade, Finance, Investment, Relations, and Aid

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