A monetary union is a union of several sovereign states, which have a common currency and a common monetary policy to operate.

Kinds of monetary unions

Monetary unions can be both national and supranational kind. For example it came to the establishment of the German Reich (1871) to a purely German monetary union, at which the predecessor currencies of the Marks were fused on these. An example of a supranational monetary union is the European monetary union (EWWU)

Monetary unions can be converted both on one side and by several partners actively. For latter case (multilateral monetary union) again the EWWU is a characteristic example, since signed and implemented their conversion on one of all states involved supranational contract was based. On one side explained (i.e. university-lateral) monetary unions come off by the assumption of a foreign currency. Such a procedure is designated also as Dollarisierung or Euroisierung and takes place frequently in developing countries, which expect by the assumption of a stable foreign currency increased and small inflation rates (example: the assumption US Dollar in Ecuador in the year 2000). A combination between university-lateral and multilateral monetary union is present, if a country gives its currency up in favor of the currency of another country, this however in mutual agreement happens; for example a contractual monetary union, after which the Banque de France the right is assigned to the monetary policy for the common currency area, exists to find beyond that however also agreements to the state supervision of the banks is between Monaco and France since 1925.

Examples of monetary unions

Current multinational monetary unions

• The European monetary union with the currency euro
• The westAfrican economic and monetary union with the currency CFA franc
• The Central African economic and monetary union with the currency CFA franc
• The eastCaribbean monetary union with the currency eastCaribbean dollar

Former monetary unions in Europe

There were monetary unions between European states already in former times. It partly concerned multinational monetary unions, partly around monetary unions, which accompanied with national combinations.

• The Scandinavian between Sweden, Denmark and Norway (1873 to 1914)
• Latin between France, Belgium, Italy, Switzerland and Greece (1865 to 1927)
• The monetary union after the establishment of the German Reich 1871. With it the gulden currency of the South German states and the of the north German states were replaced by the again created Mark, which was based on the decimal system.
• The UEBL (union Economique Belgo - Luxembourgoise) between Luxembourg and Belgium (1922 to 2002)
• The monetary union of the Federal Republic with the GDR, which preceded in principle in the year 1990 of the reunification and the task of the Marks of the GDR and the introduction of the D-mark were in the GDR at that time.

Planned monetary unions

• East Africa niche community starting from 2009
• Gulf co-operation advice starting from 2010
• Caribbean community
• South American community of states
• Russian-Byelorussian union

Economic meaning

Among other things Robert A. Mundell in its theory of the optimal currency area evaluated pro and cons of a monetary union. The states involved usually profit from declining transaction costs, however monetary unions require a increased measure of geographical flexibility of the citizens, in order to adjust the lost possibility of the flexible rate of exchange by the introduction of a common currency.

Articles in category "Monetary union"

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