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Choosing Monetary Arrangements for the 21st Century: Problems of a Small Economy


  • John Williamson

    () (Peterson Institute for International Economics)


The traditional monetary arrangement, in which a country uses and manages a distinct money, has several strong advantages, but countries have increasingly been adopting other arrangements: currency unions, use of another country's currency, and currency boards. Countries entering into a monetary union agree to share monetary sovereignty. But abandonment of monetary sovereignty (full or near-dollarization) implies a permanent and irrevocable outsourcing of monetary policy. A currency board also implies outsourcing of monetary policy but without the presumption that it is permanent or irrevocable. When deciding whether to share (or abandon) monetary sovereignty, a country must ask whether the political symbolism of a common money, reduced transactions costs (and increased trade), and probably better monetary management outweigh the increased cost of having to adjust without the freedom to vary the exchange rate.

Suggested Citation

  • John Williamson, 2006. "Choosing Monetary Arrangements for the 21st Century: Problems of a Small Economy," Policy Briefs PB06-8, Peterson Institute for International Economics.
  • Handle: RePEc:iie:pbrief:pb06-8

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    References listed on IDEAS

    1. James D. Hamilton, 2011. "Historical Oil Shocks," NBER Working Papers 16790, National Bureau of Economic Research, Inc.
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    4. Kilian, Lutz & Rebucci, Alessandro & Spatafora, Nikola, 2009. "Oil shocks and external balances," Journal of International Economics, Elsevier, vol. 77(2), pages 181-194, April.
    5. Greene, David L., 2010. "Measuring energy security: Can the United States achieve oil independence?," Energy Policy, Elsevier, vol. 38(4), pages 1614-1621, April.
    6. Dermot Gately, 2007. "What Oil Export Levels Should We Expect From OPEC?," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2), pages 151-174.
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