[[File:Currency union.PNG|thumb|right|300px|World map of current international currency unions:
]]
A currency union (also known as monetary union) is an intergovernmental trade agreement that involves two or more states sharing the same currency. These states may not necessarily have any further integration (such as an economic and monetary union, which would have, in addition, a customs union and a single market).
There are three types of currency unions:
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Informal – unilateral adoption of a foreign currency.
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Formal – adoption of foreign currency by virtue of bilateral or multilateral agreement with the monetary authority, sometimes supplemented by issue of local currency in currency peg regime.
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Formal with common policy – establishment by multiple countries of a common monetary policy and monetary authority for their common currency.
The theory of the optimal currency area addresses the question of how to determine what geographical regions should share a currency in order to maximize economic efficiency.
Convergence and divergence
Convergence in terms of
macroeconomics means that countries have a similar economic behaviour (similar
inflation rates and
economic growth).
It is easier to form a currency union for countries with more convergence as these countries have the same or at least very similar goals. The European Monetary Union (EMU) is a contemporary model for forming currency unions. Membership in the EMU requires that countries follow a strictly defined set of criteria (the member states are required to have a specific rate of inflation, government deficit,
government debt, long-term
interest rates and
exchange rate). Many other unions have adopted the view that convergence is necessary, so they now follow similar rules to aim the same direction.
Divergence is the exact opposite of convergence. Countries with different goals are very difficult to integrate in a single currency union. Their economic behaviour is completely different, which may lead to disagreements. Divergence is therefore not optimal for forming a currency union.
History
The first currency unions were established in the 19th century. The German
Zollverein came into existence in 1834, and by 1866, it included most of the German states. The fragmented states of the German Confederation agreed on common policies to increase trade and political unity.
The Latin Monetary Union, comprising France, Belgium, Italy, Switzerland, and Greece, existed between 1865 and 1927, with coinage made of gold and silver. Coins of each country were legal tender and freely interchangeable across the area. The union's success made other states join informally.
The Scandinavian Monetary Union, comprising Sweden, Denmark, and Norway, existed between 1873 and 1905 and used a currency based on gold. The system was dissolved by Sweden in 1924.
A currency union among the British colonies and protectorates in Southeast Asia, namely the Federation of Malaya, North Borneo, Sarawak, Singapore and Brunei was established in 1952. The Malaya and British Borneo dollar, the common currency for circulation was issued by the Board of Commissioners of Currency, Malaya and British Borneo from 1953 until 1967. Following the cessation of the common currency arrangement, Malaysia (the combination of Federation of Malaya, North Borneo, Sarawak), Singapore and Brunei began issuing their own currencies. Contemporarily, a currency reunion of these countries might still be feasible based on the findings of economic convergence.
List of currency unions
Existing
|
|
| CFA franc | Issued by the (France) Overseas Issuing Institute between 1945 and 1962 then by the Central Bank of West African States and the Bank of Central African States | West African CFA franc users:
Central African CFA franc users:
| 1945 | Formal, common policy | 151,978,440 |
| CFP franc | Issued by the (France) Overseas Issuing Institute |
| 1945 | Formal, common policy | 552,537 |
| Eastern Caribbean dollar | Eastern Caribbean Currency Union of the Eastern Caribbean Central Bank (ECCB) and the OECS. |
| 1965 | Formal, common policy
de facto EMU for CSME members[Anguilla and Montserrat are members of OECS currency union, but not of the CSME.] | 625,000 |
| Euro | International status and usage of the euro | Eurozone:
and EU special territories:
| 1999/2002 | Formal, common policy and EMU for EU members
Formal for Monaco and Akrotiri and Dhekelia (which form part of the EU's customs territory)
Informal for Kosovo, Montenegro
Formal for Andorra and San Marino (which are in customs union with the EU's customs territory) | 351,379,988 |
Singapore dollar
Brunei dollar | Managed together by the Monetary Authority of Singapore |
| 1967 | Formal; currencies mutually exchangeable[To all intents and purposes a monetary union. They are the last two nations whose dollars have remained at par and mutually interchangeable since the days when the Spanish Dollar was the united currency of large areas of the New World and Southeast Asia.] | 5,137,000 |
| Australian dollar | |
and external territories:
| 1966 | Informal | 24,557,000 |
| Pound sterling | Sterling area (former) |
and Overseas Territories:
and Crown Dependencies:
| 1939 | Semi-formal. UK banknotes are legal tender in locations outside the UK. Local currencies are pegged to the GBP but not necessarily accepted in the UK: Guernsey pound, Manx pound, Jersey pound and Alderney pound, Falkland Islands pound, Gibraltar pound, Saint Helena pound | 62,321,000 |
| Indian rupee | |
[alongside the ngultrum]
[Not official, but freely used as a tender in Nepal, due to primarily the economic flux with India and also the instability caused by that country's civil war.] | 1974 | Informal
Nepal minor usage | 1,352,000,000 |
| New Zealand dollar | |
and Realm:
| 1967 | Informal | 4,411,000 |
| Israeli new sheqel | |
| 1927/1986 | Informal | 11,738,000 |
Jordanian dinar | |
([[West Bank]] only)
| | Informal | 8,922,000 |
| Egyptian pound | |
([[Gaza Strip]] only)
| | Informal | 109,450,000 |
| Russian ruble | |
| 2008 | Informal | 142,177,000 |
| South African rand | Multilateral Monetary Area |
| 1974 | Formal
de facto customs and monetary union for the SACU member countries | 52,924,669 |
| Swiss franc | |
| 1920 | Informal
de facto economic and monetary union—1924 creation of a customs union, then members of the European Free Trade Association (a single market), and now also part of the European Single Market. | 8,547,015 |
| Turkish lira | |
| 1983 | Informal | 75,081,100 |
| United States dollar | |
and :
and Compact of Free Association members:
BES islands
| 1904
(Panama only) | Formal for insular areas and sovereign status with Compact of Free Association, | 339,300,000 |
Note: Every customs and monetary union and economic and monetary union also has a currency union.
is theoretically in a currency union with four blocs as the South African rand, [[Botswana pula]], British pound and US dollar freely circulate. The US Dollar was, until 2016, official tender.
Additionally, the autonomous and dependent territories, such as some of the EU member state special territories, are sometimes treated as separate customs territory from their mainland state or have varying arrangements of formal or de facto customs union, single market and currency union (or combinations thereof) with the mainland and in regards to third countries through the trade agreement signed by the mainland state.[EU Overseas countries and some other territories participate partially in the EU single market per part four of the Treaty Establishing the European Community ; Some EU Outermost regions and other territories use the Euro of the currency union, others are part of the customs union; some participate in both unions and some in neither.]
Territories of the United States, Australian External Territories and Realm of New Zealand territories share the currency and mostly also the single market of their respective mainland state, but are generally not part of its customs territory.
Currency union in Europe
The European currency union is a part of the Economic and Monetary Union of the European Union (EMU). EMU was formed during the second half of the 20th century after historic agreements, such as Treaty of Paris (1951), Maastricht Treaty (1992). In 2002, the
euro, a single European currency, was adopted by 12 member states. Currently, the
Eurozone has 21 member states. The other members of the European Union are required to adopt the euro as their currency (except for Denmark, which has been given the right to opt out), but there has not been a specific date set. The main independent institution responsible for stability of the euro is the European Central Bank (ECB). The
Eurosystem groups together the ECB and the national central banks (NCBs) of the Member States whose currency is the euro. The European System of Central Banks (ESCB) is made up of the ECB and the national central banks of all Member States of the
European Union (EU), regardless of whether or not they have adopted the euro. The Governing Board consists of the Executive Committee of the ECB and the governors of individual national banks, and determines the monetary policy, as well as short-term monetary objectives, key interest rates and the extent of monetary reserves.
Planned
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| East African Community | East African shilling | Africa | 2012 (not met), 2015 (not met), 2024 (not met), | |
| West African Monetary Zone | Eco | Africa | 2027 | Inside Economic Community of West African States, planned to eventually merge with West African franc |
| ASEAN+3 | Asian Monetary Unit | Asia | ? | a free trade agreements matrix partially established |
| Cooperation Council for the Arab States of the Gulf | Khaleeji | Arabian Peninsula | ? | Oman and the United Arab Emirates do not intend to adopt the currency at first but will do at a later date. |
| African Economic Community | Afro or Afriq | Africa | 2028 | Planned for 2028 or later |
| Brazil, Argentina and possibly other countries | Sur | Latin America | ? | As Financial Times reports, Brazil and Argentina will announce in January 2023 that they are starting preparatory work on a common currency "Sur" (South). The initiative would later be extended to invite other Latin American nations. |
Disbanded
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between Bahrain and Abu Dhabi using the Bahraini dinar
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between Bahrain, Kuwait, Oman proper, Qatar and the Trucial States, using the Gulf rupee from 1959 until 1966
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between Aden, , Bahrain, Kenya Colony, Kuwait, Oman proper, Qatar, British Somaliland, the Trucial States, Uganda, Zanzibar and British India (later independent India) using the Indian rupee until 1974
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between Belgium and the Grand-Duchy of Luxemburg (Belgium-Luxembourg Economic Union) using the Belgian franc from 1921 to the Euro
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between British India and the Straits Settlements (1837–1867) using the Indian rupee
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between Czech Republic and Slovakia (briefly from January 1, 1993 to February 8, 1993) using the Czechoslovak koruna
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between Ethiopia and Eritrea using the Ethiopian birr
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between France, Monaco, and Andorra using the French franc
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between Austria-Hungary and Liechtenstein using the Austro-Hungarian krone
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between the Eastern Caribbean, Jamaica, Barbados, Trinidad and Tobago and British Guiana using the British West Indies dollar
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between the Eastern Caribbean, Barbados, Trinidad and Tobago and British Guiana using the Eastern Caribbean dollar
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between Italy, Vatican City, and San Marino using the Italian lira
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between Jamaica and the Cayman Islands using the Jamaican pound and later Jamaican dollar
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between Kenya Colony, Uganda, and Zanzibar using the East African rupee
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between Kenya Colony, Uganda, and Zanzibar (and later ) using the East African florin
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between Kenya, and Zanzibar (later merged as Tanzania), Uganda, South Arabia, British Somaliland and Italian Somaliland using the East African shilling
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Latin Monetary Union (1865–1927), initially between France, Belgium, Italy and Switzerland, and later involving Greece,
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between Liberia and the United States using the United States dollar
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between Mauritius and Seychelles using the Mauritian rupee
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between Colonial Nigeria, the Gambia, Sierra Leone, the Gold Coast and Liberia using the British West African pound
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between Prussia and the North German states (1838–1857) using the Prussian thaler
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between Russia and the former Soviet republics (1991–1993) using the Soviet ruble
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between Armenia and Artsakh using the Armenian dram
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between Qatar and all the emirates of the United Arab Emirates, except Abu Dhabi using the Qatari and Dubai riyal
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between Saudi Arabia and Qatar using the Saudi riyal
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between Western Samoa and New Zealand using the New Zealand pound
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Scandinavian Monetary Union (1870s until 1924), between Denmark, Norway and Sweden
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between the Solomon Islands, Papua New Guinea and Australia using the Australian dollar
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between Australia, Papua, New Guinea, Nauru, the Solomon Islands, and the Gilbert and Ellice Islands using the Australian pound
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between Bavaria, Baden, Württemberg, Frankfurt, and Hohenzollern using the South German guilder
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between Spain and Andorra using the Spanish peseta
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between Trinidad and Tobago and Grenada using the Trinidad and Tobago dollar
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between Brunei, Malaysia, and Singapore (1953–1967) using the Malaya and British Borneo dollar
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between Cambodia, Laos, Guangzhouwan, Annam, Tonkin, and Cochinchina (later Vietnam) between 1885 and 1952 using the French Indochinese piastre
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between , South West Africa, and Bechuanaland (later independent Botswana) using the South African rand
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between Egypt, Anglo-Egyptian Sudan, and Mandatory Palestine (until 1926) using the Egyptian pound
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between West Germany and East Germany between 1 July 1990 and 3 October 1990, as part of a temporary, so-called "Monetary, Economic and Social Union" prior to German reunification.
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between what ultimately became the Republic of Ireland and the United Kingdom, between 1928 and 1979. The Irish Pound was held at exactly the same value as Sterling for this period, although it was not accepted for payments in the UK.
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Yen Bloc (between 1905 and 1945), between the Empire of Japan, the Korean Empire, Manchukuo, Mengjiang, the Wang Jingwei regime, and Japanese-occupied Southeast Asia prior to and during World War II.
Never materialized
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proposed Pan-American monetary union – abandoned in the form proposed by Argentina
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proposed monetary union between the United Kingdom and Norway using the pound sterling during the late 1940s and early 1950s
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proposed gold-backed, pan-African monetary union put forward by Muammar Gaddafi prior to his death
See also
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List of pegged currencies
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North American Currency Union (Amero)
[Not currently on any political agenda, based mostly off conspiracy theories.]
Further reading
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Nicola Acocella and Di Bartolomeo, G. and Tirelli, P. 2007, ‘ Monetary conservatism and fiscal coordination in a monetary union’, in: ‘ Economics Letters’, 94(1): 56–63.
External links
