Currency union


A currency union is an intergovernmental agreement that involves two or more states sharing the same currency. These states may not necessarily have any further integration.
There are three types of currency unions:
The theory of the optimal currency area addresses the question of how to determine what geographical regions should share a currency in order to maximize economic efficiency.

Advantages and disadvantages

Implementing a new currency in a country is always a controversial topic because it has both many advantages and disadvantages. New currency has different impacts on businesses and individuals, which creates more points of view on the usefulness of currency unions. As a consequence, governmental institutions often struggle when they try to implement a new currency, for example by entering a currency union.

Advantages

Convergence in terms of macroeconomics means that countries have a similar economic behaviour.
It is easier to form a currency union for countries with more convergence as these countries have the same or at least very similar goals. The European Monetary Union is a contemporary model for forming currency unions. Membership in the EMU requires that countries follow a strictly defined set of criteria. Many other unions have adopted the view that convergence is necessary, so they now follow similar rules to aim the same direction.
Divergence is the exact opposite of convergence. Countries with different goals are very difficult to integrate in a single currency union. Their economic behaviour is completely different, which may lead to disagreements. Divergence is therefore not optimal for forming a currency union.

History

The first currency unions were established in the 19th century. The German Zollverein came into existence in 1834, and by 1866, it included most of the German states. The fragmented states of the German Confederation agreed on common policies to increase trade and political unity.
The Latin Monetary Union, comprising France, Belgium, Italy, Switzerland and Greece, existed between 1865 and 1927, with coinage made of gold and silver. Coins of each country were legal tender and freely interchangeable across the area. The union's success made other states join informally.
The Scandinavian Monetary Union, comprising Sweden, Denmark and Norway, existed between 1873 and 1905, and used a currency based on gold. The system was dissolved by Sweden in 1924.

List of currency unions

Existing

CurrencyUnionUsersEst.StatusPopulationGDP
CFA francIssued by the Overseas Issuing Institute between 1945−1962 then by the Central Bank of West African States and the Bank of Central African States'
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'		1945Formal, common policy151,978,440
CFP francIssued by the Overseas Issuing Institute'
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'		1945Formal, common policy552,537
Eastern Caribbean dollarEastern Caribbean Currency Union of the OECS'



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1965Formal, common policy
de facto EMU for CSME members		625,000
EuroInternational status and usage of the euro Eurozone:







































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and EU special territories:



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Saint Martin

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1999/2002Formal, common policy and EMU for EU members
Formal for Monaco and SBAs
Formal for Andorra since 2011
Informal for Kosovo, Montenegro
Formal for the rest		341,008,867
Hong Kong dollar

1977Informal; Decreto-Lei n.º 16/95/M prohibiting the refusal of the pataca by merchants and businesses.7,775,200
Singapore dollar

Brunei dollar		Managed together by the Monetary Authority of Singapore

1967Formal; currencies mutually exchangeable5,137,000
Australian dollar

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and external territories:

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1966Informal24,557,000
Pound sterlingSterling area

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and overseas territories:

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and Crown dependencies:

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'		1939Semi-formal. UK banknotes are legal tender in locations outside the UK. Local currencies are pegged to the GBP but not necessarily accepted in the UK: Guernsey pound, Manx pound, Jersey pound and Alderney pound, Falkland Islands pound, Gibraltar pound, Saint Helena pound62,321,000
Indian rupee



1974Informal

Nepal minor usage		1,352,000,000
New Zealand dollar
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and Realm:
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Israeli new sheqel

1927/1986Informal11,738,000
Jordanian dinar

Informal8,922,000
Russian ruble




2008Informal142,177,000
South African randMultilateral Monetary Area





1974Formal
de facto customs and monetary union for the SACU member countries		52,924,669
Swiss franc

1920Informal
de facto economic and monetary union — 1924 creation of a customs union, then members of the European Free Trade Association, and now also part of the European Single Market.		8,547,015
Turkish lira

1983Informal75,081,100
United States dollar

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and insular areas:

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BES islands		1904

Formal for insular areas and sovereign status with Compact of Free Association, informal for other areas339,300,000

Note: Every customs and monetary union and economic and monetary union also has a currency union.
is theoretically in a currency union with four blocs as the South African rand, Botswana pula, British pound and US dollar freely circulate, the US Dollar was until 2016 official tender.
Additionally the autonomous and dependent territories, such as some of the EU member state special territories, are sometimes treated as separate customs territory from their mainland state or have varying arrangements of formal or de facto customs union, common market and currency union with the mainland and in regards to third countries through the trade pacts signed by the mainland state.

Currency union in Europe

The European currency union is a part of the Economic and Monetary Union of the European Union. EMU was formed during the second half of the 20th century after historic agreements, such as Treaty of Paris, Maastricht Treaty. In 2002, Euro, a single European currency, was adopted by 12 member states. Currently, the so called Eurozone has 19 member states. The other members of the European Union must adopt the Euro as their currency, but there has not been a specific date set. The main independent institution responsible for stability of the Euro is the European Central Bank. Together with 15 national banks it forms the European System of Central Banks. The Governing Board consists of the Executive Committee of the ECB and the governors of individual national banks, and determines the monetary policy, as well as short-term monetary objectives, key interest rates and the extent of monetary reserves.

Planned

CommunityCurrencyRegionTarget dateNotes
Bolivarian Alternative for the AmericasSUCRELatin America
/Caribbean		?It is planned to begin as an electronic currency involving all countries of the Bolivarian Alliance for the Americas.
East African CommunityEast African shillingAfrica2012, 2015, 2024
West African Monetary ZoneEcoAfrica2020Inside Economic Community of West African States, planned to eventually merge with West African franc
ASEAN+3Asian Monetary Unit Asia?a free trade agreements matrix partially established
Cooperation Council for the Arab States of the GulfKhaleejiArabian Peninsulac. 2013-2020Oman and the United Arab Emirates do not intend to adopt the currency at first but will do at a later date.
African Economic CommunityAfro or AfriqAfrica2028Planned for 2028 or later

Disbanded