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Currency Union with and without Banking Union

Author

Listed:
  • Vincent Bignon

    (Banque de France - Gaz de France Direction de la Recherche)

  • Régis Breton

    (Banque de France - Gaz de France Direction de la Recherche)

  • Mariana Rojas Breu

    (LEDa - Laboratoire d'Economie de Dauphine - Université Paris Dauphine-PSL - PSL - Université Paris Sciences et Lettres)

Abstract

This paper analyzes a two-country model of currency, banks and endogenous default to study whether impediments to credit market integration across jurisdictions impact the desirability of a currency union. We show that when those impediments induce a higher cost for banks to manage cross-border credit compared to domestic credit, welfare may not be maximal under a regime of currency union. But a banking union that would suppress hurdles to banking integration restores the optimality of that currency arrangement. The empirical and policy implications in terms of banking union are discussed.

Suggested Citation

  • Vincent Bignon & Régis Breton & Mariana Rojas Breu, 2018. "Currency Union with and without Banking Union," Working Papers hal-01685893, HAL.
    • Handle: RePEc:hal:wpaper:hal-01685893
    Note: View the original document on HAL open archive server: https://hal.science/hal-01685893
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    References listed on IDEAS

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    Cited by:

    1. Ansgar Belke & Daniel Gros, 2015. "Banking Union as a Shock Absorber," Ruhr Economic Papers 0548, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
    2. Ansgar Belke & Daniel Gros, 2015. "Banking Union as a Shock Absorber," ROME Working Papers 201502, ROME Network.
    3. Diego Valiante, 2015. "Banking union in a single currency area: evidence on financial fragmentation," Journal of Financial Economic Policy, Emerald Group Publishing Limited, vol. 7(3), pages 251-274, August.
    4. Athanasios Geromichalos & Kuk Mo Jung, 2014. "An Over-the-Counter Approach to the FOREX Market," Working Papers 156, University of California, Davis, Department of Economics.
    5. repec:zbw:rwirep:0548 is not listed on IDEAS
    6. Liu, Tao, 2016. "Trade finance and international currency: a moneatary search approach," MPRA Paper 68834, University Library of Munich, Germany.

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    More about this item

    Keywords

    banks; currency union; default; limited commitment; banques; défaut; engagement limité; union monétaire; crédit;
    All these keywords.

    JEL classification:

    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • F3 - International Economics - - International Finance
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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