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Monetary union or currency competition? Currency arrangements for monetary stability in East and West

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  • Carsten Hefeker

Abstract

Recent events in the European Monetary System on the one hand and monetary disintegration in the former Soviet Union on the other hand have revived interest in the question of how to design and choose a monetary regime for both parts of Europe that ensures monetary stability. The objective of monetary stability can be achieved either by complete monetary union or by currency competition. Building on Hayek's ideas, I argue that both regimes are viable solutions depending on the circumstances. The paper first focuses on the misperceived benefits of flexible exchange rates, making the case for monetary union in Western Europe. However, monetary union is no alternative for Eastern Europe and the former Soviet Union. Instead currency competition could be used to retain the benefits of flexible exchange rates and to foster monetary stability at the same time. Copyright Kluwer Academic Publishers 1995

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  • Carsten Hefeker, 1995. "Monetary union or currency competition? Currency arrangements for monetary stability in East and West," Constitutional Political Economy, Springer, vol. 6(1), pages 57-69, December.
    • Handle: RePEc:kap:copoec:v:6:y:1995:i:1:p:57-69
    DOI: 10.1007/BF01298376
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    References listed on IDEAS

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    1. Eichengreen, Barry, 1993. "International Monetary Arrangements for the 21st Century," Center for International and Development Economics Research (CIDER) Working Papers 233202, University of California-Berkeley, Department of Economics.
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    4. Bofinger, Peter & Gros, Daniel, 1992. "A Multilateral Payments Union for the Commonwealth of Independent States: Why and How?," CEPR Discussion Papers 654, C.E.P.R. Discussion Papers.
    5. Barro, Robert J & Gordon, David B, 1983. "A Positive Theory of Monetary Policy in a Natural Rate Model," Journal of Political Economy, University of Chicago Press, vol. 91(4), pages 589-610, August.
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    Cited by:

    1. Ludwig Van den Hauwe, 2005. "Constitutional Economics II," Chapters, in: Jürgen G. Backhaus (ed.), The Elgar Companion to Law and Economics, Second Edition, chapter 13, Edward Elgar Publishing.

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    More about this item

    Keywords

    B3; E5; F4;
    All these keywords.

    JEL classification:

    • B3 - Schools of Economic Thought and Methodology - - History of Economic Thought: Individuals
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance

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