Edited by Patrick Artus, André Cartapanis and Florence Legros
1. Financial market aspects of regional currency areas John Hawkins and Marc Klau1 INTRODUCTION The concept of regional currency areas (RCAs) has gained adherents since the successful launch of the euro.2 Previously, the establishment of common currencies had mostly followed political integration, such as the uniﬁcation of Italy in the early 1860s, the United States in 1789 and Germany in 1990. RCAs between independent countries have been rarer; current examples are the euro area, the two CFA zones in Africa and the Eastern Caribbean Currency Area. (Appendix A also lists some historical examples such as the Latin Monetary Union and the Scandinavian Currency Union.) But now a number of governments in Africa and the Middle East have announced plans to form regional currency areas and the idea has been discussed in many other parts of the world (see Appendix B). While the euro area is too recent to be a basis for strong conclusions, the RCAs in West and Central Africa (with one change of parity – a devaluation in 1994) and the Caribbean have all been operating for over half a century now. This record of stability is in marked contrast to many unilateral exchange rate pegs. When RCAs have been dissolved, it has usually been due to war (which ended the Latin and Scandinavian monetary unions) and change of political status (which led to separate currencies being adopted fairly quickly in the states which had formerly shared the currencies of Czechoslovakia, the USSR and Yugoslavia).3 RCAs usually...
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