Allam and Achim Goerres Miriam S. As of Aprilhe will be an assistant professor at the University of Cologne. Their objective is to contribute to the cumulative improvement of theoretical knowl- edge.
While the eurozone has seen many benefits from the introduction of the euro, it has also experienced problems such as the Greek debt crisis. Thus, the long-term outcome of monetary union under the theory of optimal currency areas remains a subject of debate.
According to Mundell, there are four main criteria for an optimal currency area: Increased labor mobility throughout the area.
Ease of labor mobility includes the ability to travel via simplified visas, a lack of cultural barriers that inhibit free movement such as different languages, and institutional policies such as the transfer of pensions or government benefits.
Capital mobility and price and wage flexibility. If financial resources can move easily between areas that trade frequently with each other, this mobility can facilitate overall trade and boost economies. This also allows the market forces of supply and demand to distribute money where it is needed and maintain a balanced economic system.
A currency risk-sharing system across countries. A risk-sharing system in a currency union requires the distribution of money to regions experiencing economic difficulties, whether due to the adoption of the first two traits or because these areas are less developed.
This criteria is controversial as it is politically difficult to sell in individual countries, as such countries with surpluses are unwilling to give up their revenue. The European sovereign debt crisis of is considered evidence of the failure of the European Economic and Monetary Union EMU to satisfy this criteria as original EMU policy instituted a no-bailout clause which soon became evident as unsustainable.
Mundell went on to amend this theory of the optimal currency area to mandate that a closer system of international risk sharing in the area was not only necessary to the success of the OCA, but crucial.
Thus, a floating exchange rate that concentrates a economic shock in the country from which it originates is not a fitting criteria for an OCA.
Instead, because the currency is shared and the overall economy of the region would benefit from absorbing economic shock as a whole, placing the burden of recession and devaluation in one country or region alone is unsustainable. Since the rise of the EMU and the adoption of the euro by participating European countries inthe subsequent ongoing European sovereign debt crisis is cited as evidence that the EMU did not fit the criteria for a successful OCA.
Other than arguable cultural barriers such as different languages, the EMU did not adequately provide for the greater economic integration necessary for cross-border risk sharing.ERD Working Paper No.
12 COSTS AND BENEFITS OF A COMMON CURRENCY FOR ASEAN 12 ERD Working Paper No.
12 COSTS AND BENEFITS OF A COMMON CURRENCY FOR ASEAN Srinivasa Madhur May Srinivasa Madhur is a Principal Economist with the Regional Economic Monitoring Unit of the Asian. The Philippines is aiming to become the blockchain hub of Asia by creating the region’s version of Silicon Valley in its northernmost tip in the Cagayan Valley.
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The anticipated outcome is the development of a framework for a single common currency area in the GCC region leveraging on the benefits of economic integration. A single currency implies a single central bank replacing all the existing individual central banks and adopting common monetary and exchange rate policies in the region.
The debate on the feasibility of a currency union has centred on the theory of Optimum Currency Areas (OCA), which was initially suggested by Mundell (). The paper concludes that although the constraints on the adoption of a common currency by ASEAN are formidable, the long-run goal of a common currency for the region may be worth considering.
In March of , U.S. Treasury Secretary Timothy Geithner let it slip that he was "quite open" to the idea of an eventual move toward a global currency run by the International Monetary Fund. Although many were surprised by this unusual announcement, the idea of a world currency is certainly not a new one.