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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.
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Chapter 3: The Lessons of the European Monetary Union

Alain Parguez


Alain Parguez Introduction According to the advice and consent of experts and columnists, the European Monetary Union (EMU) is one of the most stunning achievements of the late twentieth century that must deeply shape the economy of the twenty-first century. Europeans were the first to discover that objective market laws impose the substitutions of supra-national regions for erstwhile nation-bounded economies. They were shrewd enough to understand that to abide by market determinism they had to substitute a supra-national currency for ancient domestic currencies. The proof of their unbridled commitment to economic determinism is that as soon as they understood what they wanted to do they did it by engineering the set of institutions which constitutes the conditions of existence for monetary union. The success of the new currency must convince everyone that Europeans rightly integrated the requirements of the market. The EMU is henceforth the laboratory experiment of social engineering that must be successfully repeated everywhere, at least in America and Asia. As shown by Parguez et al. (2003), however it is not obvious that the result of the experiment must be the same everywhere for quite logical reasons. In Europe, the experiment led to the creation of a composite currency reflecting the real strength of the relative equilibrium in national economics. None of the existing currencies could achieve the status of a regional currency as the ultimate result of the quasi-tâtonnement process (ibid.) culminating in monetary union. Political constraints aside the solution must be the same in Asia...

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