Title: Optimum currency area - Wikipedia
Headings: Optimum currency area
Optimum currency area
Contents
Models
Optimum currency area with stationary expectations
Optimum currency area with international risk sharing
Applications
European Union
United States
Criticism
Keynesian
Self-fulfilling argument
See also
Notes
References

Content: However, in 1973 Mundell himself constructed an argument on the basis of the second model that was more favorable to the concept of a (then-hypothetical) shared European currency. Rather than moving toward more flexibility in exchange rates within Europe the economic arguments suggest less flexibility and a closer integration of capital markets. These economic arguments are supported by social arguments as well. On every occasion when a social disturbance leads to the threat of a strike, and the strike to an increase in wages unjustified by increases in productivity and thence to devaluation, the national currency becomes threatened. Long-run costs for the nation as a whole are bartered away by governments for what they presume to be short-run political benefits. If instead, the European currencies were bound together disturbances in the country would be cushioned, with the shock weakened by capital movements. — Robert Mundell, 1973, A Plan for a European Currency pp. 147 and 150
Applications
European Union
Europe exemplifies a situation unfavourable to a common currency. It is composed of separate nations, speaking different languages, with different customs, and having citizens feeling far greater loyalty and attachment to their own country than to a common market or to the idea of Europe. Milton Friedman
There is never complete labour mobility, even within single countries.