Chapter_20 - Chapter 20: Optimum Currency Areas and the...

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Chapter 20: Optimum Currency Areas and the European Experience The Experience of Europe EU members in the euro- zone (16 countries) EU members in the non-euro zone (9 countries) EU members with an opt-out (2 countries) January 1, 2002 Sweden United Kingdom Austria Denmark Belgium Joined in 2004 Finland Czech Republic France Estonia Germany Latvia Greece Lithuania Ireland Hungary Italy Poland Luxembourg Netherlands Joined in 2007 Portugal Bulgaria Spain Romania (expect in 2014) January 1, 2007 Slovenia (Joined in 2004) Applicant countries January 1, 2008 Croatia Cyprus (Joined in 2004) Iceland Malta (Joined in 2004) Macedonia Turkey January 1, 2009 Slovakia (Joined in 2004) For more information please check the EU website: http://europa.eu.int/. The Theory of Optimum Currency Areas Optimum currency area is an area within which exchange rate should be fixed. Factors Affecting the Extent of an Optimum Currency Area Several factors affect the extent of an optimum currency area, they are: 1) 2) 3) ECMC61 – Chapter 20 1
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Economic Integration and the Benefits of a Fixed Exchange Rate Area The benefits of a fixed exchange rate area are microeconomic in nature. The gains from having a fixed exchange rate area are called monetary efficiency gains , and these gains come into two forms. 1) Lower Transaction Costs – A fixed exchange rate area lowers transaction costs for its member countries because it eliminates the following costs: The costs of exchanging one currency into another. Common currency eliminates the bid-ask spread.
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Chapter_20 - Chapter 20: Optimum Currency Areas and the...

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