Types of monetary unions
Monetary unions can be associated with the formation of a larger state. For example, after the establishment of the German Empire (1871), there was a purely German currency union, in which the previous currencies of the mark were merged with them. In other cases, the individual states remain, as in the case of the European Monetary Union (EMU). Historically, monetary unions succeeded in forming a unitary state, while failing to disintegrate.
Currency unions can be implemented unilaterally or actively by several partners. For the latter case (multilateral monetary union), EMU is again a characteristic example, as its implementation was based on a supranational treaty signed and implemented by all participating states.
Unilaterally declared (i.e. unilateral) currency unions come about through the adoption of a foreign currency . Such a procedure is also referred to as dollarization or euroization and often takes place in developing countries that hope for increased capital inflows and lower inflation rates by adopting a stable foreign currency . An example of this is the adoption of the US dollar in various countries: the British Virgin Islands , Ecuador , Micronesia , Palau and East Timor have introduced it unilaterally as an official currency. In addition, as the world's reserve currency, it is voluntarily accepted as a means of payment by many countries.
A hybrid form between unilateral and multilateral monetary union occurs when one country gives up its currency in favor of the currency of another country, but this is done by mutual agreement; For example, there has been a contractual monetary union between Monaco and France since 1925, according to which the Banque de France has the right to conduct monetary policy for the common currency area, but there are also agreements on banking supervision to be found.
Examples of currency unions
Current currency unions
- EMU : The European Economic and Monetary Union , 19 countries with the euro
- UEMOA : The West African Economic and Monetary Union , 8 states with the CFA franc BCEAO
- CEMAC : The Central African Economic and Monetary Union , 6 states with the CFA franc BEAC
- CMA : The Common Monetary Area , 4 states with the 1: 1 coupled currencies Loti , Namibian Dollar , Lilangeni and South African Rand
- OECS : The Organization of East Caribbean States (excluding the 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
Former monetary unions in Europe
Currency unions between European countries existed before. Some of them were multinational currency unions, some of them currency unions that were associated with state associations.
- The Scandinavian Coin Union between Sweden , Denmark and Norway (1873 to 1914)
- The Latin Monetary Union between France , Belgium , Italy , Switzerland and Greece (1865 to 1927)
- The UEBL ( Union Économique Belgo-Luxembourgoise ) between Luxembourg and Belgium (1922 to 2002)
- The Monetary, Economic and Social Union between the Federal Republic of Germany and the GDR (1990)
In contrast to this, the merging of the southern German guilder currency and the northern German thaler currency to the mark after the establishment of the German Reich in 1871 did not result in a monetary union, because at the same time a unified state was founded. The monetary union of the Federal Republic of Germany with the GDR in mid-1990 resulted in a monetary union for a few months, which ended with German reunification on October 3, 1990.
Planned currency unions
Among others, Robert A. Mundell evaluated the advantages and disadvantages of a currency union in his theory of the optimal currency area . Although the participating states generally benefit from falling transaction costs , they lack the exchange rate as a policy instrument. According to Mundell, monetary unions are only beneficial on balance if the production factors labor and capital are very mobile between the participating states.
- Theurl, Theresia (1991) A common currency for Europe, Österreichischer Studienverlag.