Natalie Chen, Dennis Novy, 09 July 2018

Currency unions usually go hand in hand with deeper economic integration. But does that automatically mean more international trade? This column shows that since the end of WWII, currency unions have on average been associated with 40% more trade between member countries. The ‘thin’ relationships between countries who do not trade much with each other benefit the most from currency unions, with little in the way of a boost for more established trading relationships. 

Akvile Bertasiute, Domenico Massaro, Matthias Weber, 07 July 2018

A key critique of commonly used macroeconomic models is their reliance on the assumption of rational expectations. This column addresses this concern with a model of currency unions wherein expectations are formed through behavioural reinforcement learning, that is, learning from past mistakes. The model suggests that economic integration is of crucial importance to the functioning of a currency union. Monetary policy, in contrast, can only play a limited stabilising role.

Natalie Chen, 18 April 2017

Currency unions eliminate exchange rate fluctuations and transaction costs. In this video, Natalie Chen discusses why currency unions can be more beneficial to smaller countries. This video was recorded at the Royal Economic Society Annual Conference in April 2017.

Oliver Harvey, George Saravelos, 28 May 2014

Much ink has been spilled over Scotland’s currency options in the event of independence. This column argues that a breakup of the sterling area would be truly unprecedented. The sterling union is unique because it services a unitary state with a highly integrated and complex financial sector, an indivisible payments system, and an overlapping legal system. Politics aside, neither a unilateral nor a mutual break-up would be credible, leaving a negotiated currency union as the only option. However, as the Eurozone crisis demonstrates, a badly designed currency union could be exceptionally costly.

Angus Armstrong, Monique Ebell, 26 October 2013

In the debate over Scottish independence, the question of how the UK’s assets and sovereign debt would be divided has received insufficient attention. This column argues that the size of Scotland’s debt obligations would be crucial to its optimal choice of currency. Under plausible assumptions, fiscal tightening would be required to return Scottish debt to sustainable levels, and a self-fulfilling rise in borrowing costs might tempt Scotland to leave the sterling currency union. A debt-for-oil swap might be mutually beneficial for a newly independent Scotland and the continuing UK.

Thorvaldur Gylfason, 21 May 2009

Does every country in Africa need a currency of its own? No. This column describes the monetary zones in-the-making in Africa and how a further reduction of the number of currencies in Africa would likely encourage trade and growth and attract investors who are understandably wary of weak and volatile currencies.

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