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How should large and small countries be represented in a currency union?

  • Berger, Helge
  • Müller, Till

The likely extension of the euro area has triggered a debate on the organization of the ECB, in particular on the apparent mismatch between relative economic size and voting rights in the Council. We present a simple model of optimal representation in a federal central bank addressing this question. Optimal voting weights reflect two opposing forces: the wish to insulate common monetary policy from changing preferences at the national level, and the attempt to avoid an overly active or passive reaction to idiosyncratic national economic shocks. A perfect match between economic size and voting rights is rarely optimal, and neither is the one country, one vote principle. Empirically, there are indications that the pattern of over- and under-representation of member countries in the ECB Council might be extreme by the standards of the US Fed and German Bundesbank and not always optimal.

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Paper provided by Free University Berlin, School of Business & Economics in its series Discussion Papers with number 2004/20.

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Date of creation: 2004
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Handle: RePEc:zbw:fubsbe:200420
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