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Monetary decentralization in the United States: is there a case for multiple currencies?

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  • Benjamin Andrew Chupp

Abstract

Purpose - When sectoral shocks hit a large, regionally heterogeneous economy, it is likely that regions with sectoral specialization will be affected in different ways. In these cases, it might be optimal for the country to decentralize the currency into a number of regional currencies, thus allowing for differentiated monetary policy. The paper aims to discuss these issues. Design/methodology/approach - The author explicates the potential benefits and costs to decentralization. The author also highlights characteristics that should be satisfied in order to consider multiple currencies. This paper uses a theoretical and empirical model to test if the USA contains regional optimal currency areas. The author tests five potential divisions of the states into monetary subunions. Findings - One of these divisions is proven to result in higher welfare (a 2 percent increase) than the status quo national monetary union. Thus, the USA is not an optimal currency area, and monetary decentralization could be a feasible and welfare-improving option for future policy. Originality/value - There have been no previous studies of monetary divisions. Given the importance of fiscal decentralization, it is important to also understand the implications of monetary decentralization.

Suggested Citation

  • Benjamin Andrew Chupp, 2016. "Monetary decentralization in the United States: is there a case for multiple currencies?," Journal of Economic Studies, Emerald Group Publishing Limited, vol. 43(4), pages 535-548, September.
    • Handle: RePEc:eme:jespps:v:43:y:2016:i:4:p:535-548
    DOI: 10.1108/JES-01-2015-0011
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    More about this item

    Keywords

    Decentralization; Macroeconomics; Monetary union; Optimal currency areas; H77; E52; F33;
    All these keywords.

    JEL classification:

    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions

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