Table of Contents

Monetary Integration and Dollarization

Monetary Integration and Dollarization

No Panacea

Edited by Matías Vernengo

This book deals with the economic consequences of monetary integration, which has long been dominated by the Optimal Currency Area (OCA) paradigm. In this model, money is perceived as having developed from a private sector cost minimization process to facilitate transactions. Not surprisingly, the book argues, the main advantage of monetary integration in the OCA context is the reduction of transaction costs, yet the validity of OCA to analyze processes of monetary integration seems to be limited at best.


Luiz Carlos Bresser-Pereira

Subjects: economics and finance, financial economics and regulation, international economics


Luiz Carlos Bresser-Pereira The exchange rate is the most strategic of the four macroeconomic prices, and yet it is the least studied and the most misunderstood. The interest rate is the key price in every macroeconomic textbook; inflation is the main concern of macroeconomic policy-makers; and the wage rate is, rather, the object of microeconomic analysis. The exchange rate, however, has always occupied an awkward position in economic theory. Keynes knew well its strategic role, and probably for that reason opted for fixed exchange rates in the Bretton Woods agreements. For some time, economists were freed from concerns about it. Yet, after these agreements collapsed in the 1970s and open macroeconomics became a necessity, discussion on the exchange rate returned. Neoclassical and Keynesian economists debated for years about which exchange rate regime would be more appropriate for the world – fixed or floating. The discussion got nowhere because the rich countries, primarily the United States, were not interested in creating and backing an international organization that would work as a central bank in an international monetary union – as Paul Davidson demonstrates forcefully in his chapter. In the present state of the world, an attempt to form an international monetary union would involve the central banks in defining the ‘rules of the game’ that permit fixing exchange rates and in accepting or inventing a common reserve asset. And Davidson adds that even for some of the more developed nations this contractual agreement seems at present impossible to achieve. This book is essentially...