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. 

 

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See also Economic and Monetary Union and Single currency