What Do We Know About Currency Unions?
13 Pages Posted: 22 Jun 2006
The paper presents the text of an inaugural lecture given at the Bank of England in December 2005 in memory of John Flemming. It provides a personal view of the lessons that can be drawn about currency unions from the experience of the European Monetary Union. It argues that business cycle concurrence is a less important criterion for participation than was once believed. Most important is the integration of financial markets and the shrinking of financial premia that individual countries face: this opens the way for countries to share risk, thereby enhancing welfare.
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