Optimum currency area theory - a critical view
2012
Muchova, E., University of Economics in Bratislava (Slovak Republic)
The launching of monetary union in Europe, from a historic point of view, represents a completely new solution. It did not have a very strong background in economic theory. The paper deals with the theory of optimum currency area (OCA) as the theoretical basis for analyzing the advantages of membership in a monetary union. R. A. Mundell in his ground-breaking essay of 1961 opened up the issue of optimal currency areas and put the question of under what conditions it is advantageous for a group of countries to introduce a common currency. The project of EMU has raised questions and polemics among a professional public. The criteria of the optimum currency area together with real convergence play a key role in assessing preparedness to join the monetary union, as well as in evaluating the costs and benefits of membership in it. The criteria for an optimal currency area are not a black and white problem. Some of them may be partially met and others not at all. This paper deals with the polemic issues related to the theory of OCA, explores the development of OCA theory and analyses the arguments pro-and-cons of a monetary union and finally discuss the relation between a political union and a monetary union.
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