Optimum Currency Area

Optimum Currency Area

The economic theory explains that currencies should operate in an area that is sufficiently homogeneous to provide a stable basis for that currency. Otherwise, there will be pressures for sub-areas to break away or requirements for major transfers of money from a central authority to sub-areas in order to iron out regional differences.

Long-established stable states with the same economic development are generally regarded as ideal currency areas because they tend to be homogenous and possess all the tools for economic policy-making.

The Eurozone is not yet an optimum currency area, and the EU had only the competence to organise monetary policy – i.e. not all the tools.

The Lisbon Treaty and the Euro Pact have offered the EU new possibilities to govern other kinds of economic policy. 



See also Economic and Monetary Union and Single currency