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Euroland and East Asia in a Dollar-Based International Monetary System: Mundell Revisited

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  • Ronald I. McKinnon

Abstract

August 9, 1999 Robert Mundell's long standing enthusiasm for European monetary unification was vindicated by the formal advent of the euro on January 1, 1999. For almost 30 years, he has seen clearly that the advantages of a common European currency would swamp any disadvantages. But therein lies a paradox. The fierce scholarly debate for more than a decade before EMU's advent on whether a one-size-fits-all monetary policy was appropriate for Europe pitted politicians, who on the continent were mainly in favor, against economists, who generally were much more doubtful. And the doubters who opposed EMU used arguments drawn from Mundell's own work! Specifically, his classic article, "The Theory of Optimum Currency Currency Areas (1961) comes down against a one-size-fits-all monetary policy-and seems to argue in favor of making currency areas smaller rather than larger. In this paper, I will first present some doctrinal history to resolve the paradox and better explain Mundell's position today. Second, I will look at how the new euro and the dollar can best co-exist-given the latter's traditional role as international money. Third, in the absence of an "Asian euro", I will argue for a common monetary standard in East Asia based on the dollar.

Suggested Citation

  • Ronald I. McKinnon, 1999. "Euroland and East Asia in a Dollar-Based International Monetary System: Mundell Revisited," Working Papers 99020, Stanford University, Department of Economics.
  • Handle: RePEc:wop:stanec:99020
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    File URL: http://www-econ.stanford.edu/faculty/workp/swp99020.pdf
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    1. Eichengreen, Barry, 1993. "European Monetary Unification," Journal of Economic Literature, American Economic Association, vol. 31(3), pages 1321-1357, September.
    2. Jacob A. Frenkel & Michael L. Mussa, 1980. "Efficiency of Foreign Exchange Markets and Measures of Turbulence," NBER Working Papers 0476, National Bureau of Economic Research, Inc.
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    Cited by:

    1. Tuan Khai Vu, 2015. "Exchange Rate Regimes and the Sources of Real Exchange Rate Fluctuations: Evidence from East Asia," Working Papers 31, Meisei University, School of Economics.
    2. Gerardo Esquivel & Felipe Larrain B., 2002. "The Impact of G-3 Exchange Rate Volatility on Developing Countries," CID Working Papers 86, Center for International Development at Harvard University.
    3. Mashkoor, Asim & Ahmed, Ovais & Herani, Dr. Gobin, 2015. "The relationship between Foreign Currency trading and Economic Development: A case Study of Pakistan," MPRA Paper 64482, University Library of Munich, Germany.

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