 Small states on the fringes of big currency areas: Experiences and the policy options of small non-EU European statesMár Guðmundsson Economics from Department of Economics, Central bank of Iceland Abstract: A big currency area is likely to have small states on its fringes that are strongly influenced by the monetary policy pursued by that area. Many of these countries will choose to peg their exchange rates to the currency of the big area and even go as far as to adopt that currency as a legal tender. This is clearly the case on the southern flank of the United States. It is also likely to be the case with small states on the fringes of the emerging euro area. The relative attractiveness for European "non-EU-outs" of some kind of a euro peg depends on the eventual size of the euro area, the degree of economic integration with the euro area, the likelihood of asymmetric shocks and the options that will be available regarding bilateral pegs for close third countries. There are different degrees to the option of a peg to the euro, i.e. a traditional unilateral peg, a bilateral peg, a currency board and the introduction of the euro as a legal tender. The last option will give greatest benefits in terms of reducing the interest rate differential but has costs in terms of a loss of independent monetary policy and sovereignty. From that standpoint a membership in EMU is superior. Date: 1999-05 Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:ice:wpaper:wp04 Access Statistics for this paper More papers in Economics from Department of Economics, Central bank of Iceland Contact information at EDIRC. |
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