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Currency Areas in Theory and Practice

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  • RICHARD POMFRET

Abstract

The dominant theoretical framework for analysing currency domains, optimum currency area (OCA) theory, has a miserable record in explaining actual currency area formation, expansion or dissolution. Ministates use foreign currencies to avoid high transactions costs; otherwise countries want control over their monetary policy. Nations do not tolerate multiple currencies, because they complicate public revenue and expenditure decisions. These arguments regarding control of monetary policy and content of fiscal policy differ from the OCA theory's emphasis on a trade-off between the microeconomic transactions costs benefits of a wider currency area and the macroeconomic policy benefits of a narrower currency area. Copyright 2005 The Economic Society Of Australia.

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  • Richard Pomfret, 2005. "Currency Areas in Theory and Practice," The Economic Record, The Economic Society of Australia, vol. 81(253), pages 166-176, June.
  • Handle: RePEc:bla:ecorec:v:81:y:2005:i:253:p:166-176
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    Citations

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    Cited by:

    1. Richard Pomfret, 2005. "Regional Trade Agreements," International Trade 0511002, EconWPA.
    2. Dean, James W., 2004. "Adopting the Euro: tradeoffs and challenges facing the new EU-ten," Journal of Policy Modeling, Elsevier, vol. 26(7), pages 759-767, October.
    3. Drazen Derado, 2009. "Financial Integration and Financial Crisis: Croatia Approaching The EMU," Financial Theory and Practice, Institute of Public Finance, vol. 33(3), pages 299-328.
    4. Pomfret, Richard, 2014. "European crises and the Asian economies," Journal of Asian Economics, Elsevier, vol. 31, pages 71-81.
    5. repec:spd:journl:v:67:y:2017:i:4:p:23-44 is not listed on IDEAS
    6. Richard Pomfret, 2017. "Currency Union and Disunion in Europe and the Former Soviet Union," CESifo Forum, Ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 17(4), pages 43-47, January.
    7. James Dean, 2004. "Euroizing the New Europe," Carleton Economic Papers 04-16, Carleton University, Department of Economics.
    8. Joseph Aschheim & George S. Tavlas, 2006. "Money as mumeraire: doctrinal aspects and contemporary relevance," Banca Nazionale del Lavoro Quarterly Review, Banca Nazionale del Lavoro, vol. 59(239), pages 333-361.
    9. Joseph Aschheim & George S. Tavlas, 2006. "Money as mumeraire: doctrinal aspects and contemporary relevance," BNL Quarterly Review, Banca Nazionale del Lavoro, vol. 59(239), pages 333-361.
    10. James W. Dean & G. Robert Ross, 2006. "Paradoxes and Puzzles in Our Globalized World Public Support of Trade Policy, International Outsourcing Trade Liberalization, Globalization," Carleton Economic Papers 06-07, Carleton University, Department of Economics.
    11. Emma Xiaoqin Fan & Jesus Felipe, 2005. "The diverging patterns of profitability, investment and growth of China and India, 1980-2003," CAMA Working Papers 2005-22, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.

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