Monetary Unions and Hard Pegs

Edited by Volbert Alexander, George M. von Furstenberg and Jacques Mélitz

Published in print March 2004 | ISBN: 9780199271405
Published online August 2004 | e-ISBN: 9780191601200 | DOI:
Monetary Unions and Hard Pegs

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Financial services with global reach are a highly information-intensive business. In it, the ability to deliver reliable price formation, global liquidity, and network benefits is increasingly critical for the choice of currency denomination. Conversely, the exchange value and prospective usefulness of small currencies becomes less certain, and transaction costs for them may rise. Economic instability is invited as currency and portfolio substitution with the dominant international currency denomination increase the likelihood of currency mismatches and financial crises. In view of these failings of many of the financially small currencies, the number of currencies worldwide well may shrink greatly in the decades ahead.

Drawing lessons mostly from contemporary developments, this book analyzes current approaches to overcoming excessive monetary division within integrating regions. It focuses on the effects of monetary or currency unions on trade among members and on their financial development and stability. In the process, contributors analyze the promise and subversion of hard pegs such as that attempted by the currency board of Argentina. They also examine unilateral dollarization -- adopted in a few countries formally, and in many more informally without giving up the local currency -- and multilateral monetary union in Europe. There the euro functions as an innovative, non-hegemonic form of internationally shared and co-managed fiat money that will also be adopted by the 2004 class of European-Union accession countries in coming years.

Keywords: accession countries; Argentine crisis; banking crises; banking supervision and regulation; currency crises; dollarization; electronic money; emerging market economies; euro; European; exchange rate system; International financial arrangements; international monetary system; international money and trade; monetary economics; monetary union; Monetary Union; network externalities; portfolio substitution

Book.  398 pages.  Illustrated.

Subjects: Economic Systems

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Geography, Trade, and Currency Union in Monetary Unions and Hard Pegs


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