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The Theoretical Rationale For A Common European Currency Revisited, J. Patrick Raines

Robins School of Business White Paper Series, 1980-2022

At the outset of a discussion of monetary integration, the characteristics that are essential for a monetary union as well as those necessary for the continued and successful existence of the monetary union must be considered.

These three requirements—effectively a single currency, a single union monetary policy, union control of international reserves and the external exchange rate—are regarded here as essential for an arrangement to qualify as a monetary union. It is necessary to realize from the beginning that the political commitment to achieve the goals of a European monetary system must be present. In other words, the national sovereignty …

The Theoretical Rationale For A Common European Currency Revisted, J. Patrick Raines

Robins School of Business White Paper Series, 1980-2022

At the outset of a discussion of monetary integration, the characteristics that are essential for a monetary union as well as those necessary for the continued and successful existence of the monetary union must be considered.

First, in any monetary union, either there must be a single currency, or if there are several currencies, these currencies must be fully convertible, in one another, at immutably fixed exchange rates thus effectively creating a single currency.

Second, the immutability of fixed exchange rates depends upon mutually consistent monetary policies within the union. Thus, there must be an arrangement whereby monetary policy for …