Participation in a Currency Union

Alessandra Casella

No 395, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: When countries of different sizes participate in a cooperative agreement, the potential gain from deviation determines the minimum power that each country requires in the common decision-making. This paper studies the problem in the context of a common currency, which requires coordination of monetary policies. In the presence of externalities in the decentralized equilibrium with national currencies, it is shown that a small economy will in general require, and obtain, more than proportional power in the agreement. With a common currency, this is equivalent to a transfer of seigniorage revenues in its favour. With national currencies such transfer would not occur, and without additional unconstrained fiscal instruments it would be impossible to sustain coordination with fixed exchange rates. When the number of potential countries in the union is large, it is not generally possible to prevent deviations from individual countries or from coalitions. The probability of deviation rises sharply with the number of countries and of possible coalitions.

Keywords: Cooperation; Currency Union; Seigniorage (search for similar items in EconPapers)
Date: 1990-03
References: Add references at CitEc
Citations: View citations in EconPapers (11)

Downloads: (external link)
http://www.cepr.org/active/publications/discussion_papers/dp.php?dpno=395 (application/pdf)

Related works:
Journal Article: Participation in a Currency Union (1992)
Working Paper: Participation in a Currency Union (1990)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:395

Ordering information: This working paper can be ordered from
http://www.cepr.org/ ... pers/dp.php?dpno=395

Access Statistics for this paper

More papers in CEPR Discussion Papers from Centre for Economic Policy Research 33 Great Sutton Street, London EC1V 0DX, UK.
Bibliographic data for series maintained by CEPR ().