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Monetary Union, Banks and Financial Integration

Author

Listed:
  • Régis Breton
  • Mariana Rojas Breu

    (LEDa - Laboratoire d'Economie de Dauphine - Université Paris Dauphine-PSL - PSL - Université Paris sciences et lettres)

  • Vincent Bignon

Abstract

This paper analyzes a two-country model of money and banks to examine the conditions under which the creation of a monetary union between two countries is optimal. Is is shown that if agents resort to banks to adjust their monetary holdings through borrowing and if nobody can force them to repay their debts, it may be optimal for both countries to set up two different currencies, along with strictly positive conversion costs. A necessary condition for this is that credit market integration is limited. This arises even though both countries are perfectly identical.

Suggested Citation

  • Régis Breton & Mariana Rojas Breu & Vincent Bignon, 2013. "Monetary Union, Banks and Financial Integration," Post-Print hal-01685888, HAL.
  • Handle: RePEc:hal:journl:hal-01685888
    Note: View the original document on HAL open archive server: https://hal.archives-ouvertes.fr/hal-01685888
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    Cited by:

    1. Belke, Ansgar & Gros, Daniel, 2015. "Banking Union as a Shock Absorber," Ruhr Economic Papers 548, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    2. 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.
    3. Pedro, Gomis-Porqueras & Cathy, Zhang, 2018. "Optimal Monetary and Fiscal Policy with Migration in a Currency Union," MPRA Paper 83754, University Library of Munich, Germany.
    4. Diego Valiante, 2015. "Banking union in a single currency area: evidence on financial fragmentation," Journal of Financial Economic Policy, Emerald Group Publishing, vol. 7(3), pages 251-274, August.
    5. 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.
    6. repec:zbw:rwirep:0548 is not listed on IDEAS
    7. 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

    Monetary union; credit; default; limited commitment;
    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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