IDEAS home Printed from https://ideas.repec.org/p/ice/wpaper/wp04.html
   My bibliography  Save this paper

Small states on the fringes of big currency areas: Experiences and the policy options of small non-EU European states

Author

Listed:
  • Már Guðmundsson

Abstract

A big currency area is likely to have small states on its fringes that are strongly influenced by the monetary policy pursued by that area. Many of these countries will choose to peg their exchange rates to the currency of the big area and even go as far as to adopt that currency as a legal tender. This is clearly the case on the southern flank of the United States. It is also likely to be the case with small states on the fringes of the emerging euro area. The relative attractiveness for European "non-EU-outs" of some kind of a euro peg depends on the eventual size of the euro area, the degree of economic integration with the euro area, the likelihood of asymmetric shocks and the options that will be available regarding bilateral pegs for close third countries. There are different degrees to the option of a peg to the euro, i.e. a traditional unilateral peg, a bilateral peg, a currency board and the introduction of the euro as a legal tender. The last option will give greatest benefits in terms of reducing the interest rate differential but has costs in terms of a loss of independent monetary policy and sovereignty. From that standpoint a membership in EMU is superior.

Suggested Citation

  • Már Guðmundsson, 1999. "Small states on the fringes of big currency areas: Experiences and the policy options of small non-EU European states," Economics wp04, Department of Economics, Central bank of Iceland.
    • Handle: RePEc:ice:wpaper:wp04
    as

    Download full text from publisher

    File URL: http://www.sedlabanki.is/uploads/files/wp4.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Honohan, Patrick, 2000. "Miniblocs and Fringe Currencies of the EMU," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 15, pages 47-75.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Patrick Honohan & Philip R. Lane, 1999. "Pegging to the Dollar and the Euro," International Finance, Wiley Blackwell, vol. 2(3), pages 379-410, November.
    2. Patrick Honohan & Philip R. Lane, 2003. "Divergent inflation rates in EMU [‘European financial integration and equity returns: a theory-based assessment’]," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 18(37), pages 357-394.
    3. Michael Artis & Marion Kohler & Jacques Mélitz, 1998. "Trade and the Number of OCAs in the World," Open Economies Review, Springer, vol. 9(1), pages 537-568, January.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ice:wpaper:wp04. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Central Bank of Iceland (email available below). General contact details of provider: https://edirc.repec.org/data/sedgvis.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.