Essays in Honour of Charles Goodhart, Volume One
Edited by Paul Mizen
9. A cost of uniﬁed currency Nobuhiro Kiyotaki and John Moore* 1. INTRODUCTION Until recently, Charles and I (Kiyotaki) taught a graduate monetary economics course together. Charles usually taught ﬁrst in the autumn, and then I taught in the spring. The course was a popular one. The students seemed both to enjoy and to get puzzled by the contrast between us, in content and style. When students put questions to Charles, he always had answers. When they put questions to me, I often had to ask myself, ‘Do I know the answer?’ This short chapter, written jointly with John Moore, is in part the result of such a question. The question can be phrased: ‘In a hypothetical world where there are no country-speciﬁc macroeconomic shocks and so no need for independent stabilization policy, is having a uniﬁed currency always better than having separate national currencies?’ A standard argument for separate currencies is that each country can pursue an independent monetary policy for stabilizing its national economy (assuming that monetary policy can and should stabilize an economy). A usual argument for currency uniﬁcation is that it stimulates the trade of goods, services and assets. Thus it looks obvious that, if there is no need for independent stabilization, a uniﬁed currency would be better. But is it so obvious? We would like to present a counterexample. The environment we have in mind is a world with many types of goods and many types of people....
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