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A Long Term Perspective on the Euro

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  • Michael D. Bordo
  • Harold James

Abstract

This study grounds the establishment of EMU and the euro in the context of the history of international monetary cooperation and of monetary unions, above all in the U.S., Germany and Italy. The purpose of national monetary unions was to reduce transactions costs of multiple currencies and thereby facilitate commerce; to reduce exchange rate volatility; and to prevent wasteful competition for seigniorage. By contrast, supranational unions, such as the Latin Monetary Union or the Scandinavian Currency Union were conducted in the broader setting of an international monetary order, the gold standard. There are closer parallels between EMU and national monetary unions. Historical monetary unions also were associated with fiscal unions (fiscal federalism). Both fiscal and monetary unions were an important part of the process of political unification. In the past, central banks, and the currencies they managed, have been discredited or put under severe strain as a result of: severe or endemic fiscal problems creating pressures for the monetization of public debt; low economic growth may produce demands for central banks to pursue more expansionary policies; regional strains producing a demand for different monetary policies to adjust to particular regional pressures; severe crises of the financial system; and tensions between the international and the domestic role of a leading currency. In particular, there is the possibility for the EMU that low rates of growth will produce direct challenges to the management of the currency, and a demand for a more politically controlled and for a more expansive monetary policy. Such demands might arise in some parts or regions or countries of the euro area, but not in others and would lead to a politically highly difficult discussion of monetary governance.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 13815.

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Date of creation: Feb 2008
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Handle: RePEc:nbr:nberwo:13815

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Cited by:
  1. Etienne Farvaque & Norimichi Matsueda, 2009. "Monetary Unions and External Shocks," Economics Bulletin, AccessEcon, vol. 29(2), pages 1483-1491.
  2. A. Malliaris & Mary Malliaris, 2013. "Are oil, gold and the euro inter-related? Time series and neural network analysis," Review of Quantitative Finance and Accounting, Springer, Springer, vol. 40(1), pages 1-14, January.
  3. Alistair K. L. Milne, 2011. "Limited Liability Government Debt for the Eurozone -super-†," CESifo Economic Studies, CESifo, CESifo, vol. 57(1), pages 44-78, March.
  4. Agata Osinska, Grzegorz Tchorek, 2010. "Financial Crisis and Changes in the International Monetary System. Implications for Euro," Equilibrium, Uniwersytet Mikolaja Kopernika, vol. 2, pages 9-19.
  5. Maxime Parodi, 2013. "De la monnaie cosmopolitique," Documents de Travail de l'OFCE, Observatoire Francais des Conjonctures Economiques (OFCE) 2013-09, Observatoire Francais des Conjonctures Economiques (OFCE).
  6. Mihai Rebiga, 2010. "Is Romania Ready for Adopting Euro?," Studies and Scientific Researches. Economics Edition, "Vasile Alecsandri" University of Bacau, Faculty of Economic Sciences, "Vasile Alecsandri" University of Bacau, Faculty of Economic Sciences, issue 15.
  7. Rockoff, Hugh & White, Eugene N., 2012. "Monetary Regimes and Policy on a Global Scale: The Oeuvre of Michael D. Bordo," MPRA Paper 49672, University Library of Munich, Germany, revised May 2013.
  8. repec:spo:wpecon:info:hdl:2441/f6h8764enu2lskk9p50c4i5qm is not listed on IDEAS
  9. Maxime Parodi, 2013. "De la monnaie cosmopolitique," Sciences Po publications 2013-09, Sciences Po.

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