Essays in Honour of Peter Lloyd, Volume II
Edited by Sisira Jayasuriya
Chapter 8: New criteria for optimum currency areas
Herbert Grubel* Peter Lloyd’s wide range of interest in economic theory and policy has always included the links between his native New Zealand and his adopted Australia. For this reason, it is appropriate for me to contribute a chapter that concerns the economic and political issues surrounding a possible monetary union between the two countries. The subject in the context of North America also happens to have been one of my research priorities during the last four years. The topic of monetary union has attracted much attention by economists as a result of the currency upheavals in Asia and South America in the 1990s, which suggests that the beneﬁts from the traditional f xing of ﬁ exchange rates by independent central banks can easily be lost by the problems created by speculative attacks on currencies. The interest of economists was also aroused by the fact that at the beginning of 2001 members of the European Monetary Union f nalized the process by the highly ﬁ symbolic replacement of national currencies by euro notes and coins. Many economists, who had predicted that this event would never take place, were prompted to repeat their arguments why the union made no sense economically and why therefore it was doomed to failure. Economists also turned their attention to the issues surrounding the possible creation of a North American monetary union.1 This attention was driven by two additional motives. First, the North American Free Trade Agreement between Canada, Mexico and the USA signed in the early...
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