Currency union

A monetary union is a union of several sovereign states that have a common currency and a common monetary policy operate.

Types of monetary unions

Monetary unions can be associated with the formation of a larger state. For example, it came after the founding of the German Empire (1871 ) to a purely German monetary union, in which the predecessor currencies of the Mark were fused to this. In other cases, individual states remain in place, as in the European Monetary Union ( EMU). Historically, monetary unions with simultaneous formation of a unitary state successfully, while they fell apart otherwise.

Monetary unions can be unilateral actively implemented by several partners. For the latter case (multilateral monetary union ) is again the EMU a characteristic example, since their implementation on a signed by all States concerned and implemented supranational agreement was based.

Unilaterally declared (ie unilateral ) currency unions come about through the acquisition of a foreign currency. Such an approach is also referred to as dollarization or Euroisierung and often takes place in developing countries who hope to increased capital inflows and lower inflation rates by the assumption of a stable foreign currency. An example of this is the takeover of the U.S. dollar in different countries: The British Virgin Islands, Ecuador, Micronesia, Palau and East Timor have unilaterally adopted it as its official currency. In addition, he is accepted by many other countries as the world 's reserve currency by many voluntary as payment.

A hybrid between unilateral and multilateral monetary union is when a country gives up its currency in favor of the currency of another country, however, this is done by mutual consent; for example, between Monaco and France since 1925, a contractual monetary union, according to the Banque de France falls to the right to monetary policy for the single currency area, but also about agreements also can be found on banking supervision.

Examples of monetary unions

Current monetary unions

  • EMU: The European Economic and Monetary Union, 18 countries with the Euro
  • UEMOA: The West African Economic and Monetary Union, 8 states with the West African CFA franc
  • CEMAC: Central African Economic and Monetary Union, 6 States with the CFA franc
  • CMA: The Common Monetary Area, 4 States with the 1:1 pegged currencies Loti, Namibia dollar, South African rand and Lilangeni
  • OECS: Organization of Eastern Caribbean States (except British Virgin Islands), 6 states and 2 British Overseas Territories with the East Caribbean Dollar
  • Switzerland and the Principality of Liechtenstein, 2 states with the Swiss franc

Previous Currency Unions in Europe

Monetary unions between European countries had earlier. Partly it was multinational monetary unions, in part to monetary unions, which were accompanied by state associations.

  • The Scandinavian Monetary Union between Sweden, Denmark and Norway ( 1873-1914 )
  • The Latin Monetary Union between France, Belgium, Italy, Switzerland and Greece ( 1865-1927 )
  • The Monetary Union after the German Empire in 1871. Thus the guilder currency of the southern states and the thaler currency in the North German Confederation was replaced by the newly created mark in the Empire, which was based on the decimal system.
  • The BLEU ( Union Economique Belgo - Luxembourgoise ) between Luxembourg and Belgium (1922 to 2002)
  • The monetary union of the Federal Republic and the GDR, which preceded the 1990 reunification and, in principle, was the task of the Mark of the GDR and the introduction of the D - Mark in the former GDR.

Planned Monetary Unions

  • EAC: East African Community, 5 States
  • ECOWAS: Economic Community of West African, 15 states with the Eco
  • GCC: Gulf Cooperation Council, 4 states with the Khaleeji
  • CARICOM: Caribbean Community, 14 States and 1 British overseas territory
  • UNASUR: Union of South American Nations, 12 States
  • Russian - Belarusian Union, 2 States
  • South East Asian Monetary Union (Plan of the ASEAN countries )

Economic Importance

Pros and cons of a monetary union evaluated included Robert A. Mundell in his theory of optimum currency area. Although the participating states generally benefit from declining transaction costs, but they lack the exchange rate as a policy instrument. According to Mundell monetary unions in the balance are only advantageous if the production factors labor and capital among the participating States are highly mobile.

Others

The Swiss National Bank ( SNB) has set a minimum exchange rate of 1.00 EUR = 1.20 CHF in September 2011 (in other words: it has set a maximum rate of the CHF against the EUR ). The reason they stated that the Swiss franc was overvalued for a long time. '

Thus it has coupled the course of CHF de facto to that of the euro. The SNB keeps the price of CHF at 1.20 euros by buys euros ( thus increasing the amount of the outstanding CHF, see also monetary policy).

German Reich Central African CFA franc Lesotho loti Namibian dollar German gold mark Association of Southeast Asian Nations Robert Mundell
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