Currency union

File:Currency union.PNG

World map of current international currency unions:

  EUR Euro

  USD United States dollar

  CHF Swiss franc

  INR Indian rupee

  AUD Australian dollar

  XCD Eastern Caribbean dollar

  ZAR South African rand

  XOF West African CFA franc

  XAF Central African CFA franc

  XPF CFP franc

A currency union (also known as monetary union) is an intergovernmental agreement that involves two or more states sharing the same currency. These states may not necessarily have any further integration (such as an economic and monetary union, which would have, in addition, a customs union and a single market).

There are three types of currency unions:

• Informal – unilateral adoption of a foreign currency.
• Formal – adoption of foreign currency by virtue of bilateral or multilateral agreement with the monetary authority, sometimes supplemented by issue of local currency in currency peg regime.
• Formal with common policy – establishment by multiple countries of a common monetary policy and monetary authority for their common currency.

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.

Convergence and divergence

Convergence in terms of macroeconomics means that countries have a similar economic behaviour (similar inflation rates and economic growth). 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 (EMU) is a contemporary model for forming currency unions. Membership in the EMU requires that countries follow a strictly defined set of criteria (the member states are required to have a specific rate of inflation, government deficit, government debt, long-term interest rates and exchange rate). 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.

A currency union among the British colonies and protectorates in Southeast Asia, namely the Federation of Malaya, North Borneo, Sarawak, Singapore and Brunei was established in 1952. The Malaya and British Borneo dollar, the common currency for circulation was issued by the Board of Commissioners of Currency, Malaya and British Borneo from 1953 until 1967. Following the cessation of the common currency arrangement, Malaysia (the combination of Federation of Malaya, North Borneo, Sarawak), Singapore and Brunei began issuing their own currencies. Contemporarily, a currency reunion of these countries might still be feasible based on the findings of economic convergence.

List of currency unions

Existing

Currency	Union	Users	Est.	Status	Population
CFA franc	Issued by the (French) Overseas Issuing Institute between 1945 and 1962 then by the Central Bank of West African States and the Bank of Central African States	West African CFA franc users: Benin Burkina Faso Template:Country data Côte d'Ivoire Guinea-Bissau Mali Niger Senegal Togo Central African CFA franc users: Cameroon Central African Republic Chad Equatorial Guinea Gabon Republic of the Congo	1945	Formal, common policy	151,978,440
CFP franc	Issued by the (French) Overseas Issuing Institute	French Polynesia New Caledonia Wallis and Futuna	1945	Formal, common policy	552,537
Eastern Caribbean dollar	Eastern Caribbean Currency Union of the Eastern Caribbean Central Bank (ECCB) and the OECS.	Anguilla Antigua and Barbuda Dominica Grenada Montserrat Saint Kitts and Nevis Saint Lucia Saint Vincent and the Grenadines	1965	Formal, common policy de facto EMU for CSME members	625,000
Euro	International status and usage of the euro	Template:Flagicon Eurozone: Austria Belgium Bulgaria Croatia Cyprus Estonia Finland France Germany Greece Ireland Italy Latvia Lithuania Luxembourg Malta Netherlands Portugal Slovakia Slovenia Spain and EU special territories: French Southern and Antarctic Lands Saint Barthélemy Saint Pierre and Miquelon Template:Country data Akrotiri and Dhekelia Andorra Kosovo Monaco Montenegro San Marino Vatican City	1999/2002	Formal, common policy and EMU for EU members Formal for Monaco and Akrotiri and Dhekelia (which form part of the EU's customs territory) Informal for Kosovo, Montenegro Formal for Andorra and San Marino (which are in customs union with the EU's customs territory)	351,379,988
Singapore dollar Brunei dollar	Managed together by the Monetary Authority of Singapore	Brunei Singapore	1967	Formal; currencies mutually exchangeable	5,137,000
Australian dollar		Australia and external territories: Template:Country data Ashmore and Cartier Islands Template:Country data Australian Antarctic Territory Christmas Island Cocos (Keeling) Islands Template:Country data Coral Sea Islands Template:Country data Heard Island and McDonald Islands Norfolk Island Kiribati Nauru Tuvalu	1966	Informal	24,557,000
Pound sterling	Sterling area (former)	United Kingdom and Overseas Territories: British Antarctic Territory British Indian Ocean Territory Falkland Islands Gibraltar Template:Country data Saint Helena, Ascension and Tristan da Cunha South Georgia and the South Sandwich Islands and Crown Dependencies: Template:Country data Bailiwick of Guernsey Bailiwick of Jersey Isle of Man	1939	Semi-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 pound	62,321,000
Indian rupee		India Bhutan Nepal	1974	Informal Nepal minor usage	1,352,000,000
New Zealand dollar		New Zealand and Realm: Cook Islands Niue Tokelau Pitcairn Islands	1967	Informal	4,411,000
Israeli new sheqel		Israel	1927/1986	Informal	11,738,000
Jordanian dinar		Jordan Template:Country data Palestine (West Bank only)		Informal	8,922,000
Egyptian pound		Egypt Template:Country data Palestine (Gaza Strip only)		Informal	109,450,000
Russian ruble		Russia Abkhazia South Ossetia	2008	Informal	142,177,000
South African rand	Multilateral Monetary Area	Lesotho Namibia South Africa Eswatini	1974	Formal de facto customs and monetary union for the SACU member countries	52,924,669
Swiss franc		Liechtenstein Switzerland	1920	Informal de facto economic and monetary union—1924 creation of a customs union, then members of the European Free Trade Association (a common market), and now also part of the European Single Market.	8,547,015
Turkish lira		Turkey Turkish Republic of Northern Cyprus	1983	Informal	75,081,100
United States dollar		United States and insular areas: American Samoa Guam Template:Country data United States Minor Outlying Islands Northern Mariana Islands Puerto Rico United States Virgin Islands and Compact of Free Association members: Marshall Islands Federated States of Micronesia Palau Ecuador El Salvador Panama Timor-Leste Turks and Caicos Islands British Virgin Islands Template:Flagicon BES islands	1904 (Panama only)	Formal for insular areas and sovereign status with Compact of Free Association, informal for other areas	339,300,000

Note: Every customs and monetary union and economic and monetary union also has a currency union.

Zimbabwe 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 (or combinations thereof) 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). EMU was formed during the second half of the 20th century after historic agreements, such as Treaty of Paris (1951), Maastricht Treaty (1992). In 2002, the euro, a single European currency, was adopted by 12 member states. Currently, the Eurozone has 20 member states. The other members of the European Union are required to adopt the euro as their currency (except for Denmark, which has been given the right to opt out), but there has not been a specific date set. The main independent institution responsible for stability of the euro is the European Central Bank (ECB). The Eurosystem groups together the ECB and the national central banks (NCBs) of the Member States whose currency is the euro. The European System of Central Banks (ESCB) is made up of the ECB and the national central banks of all Member States of the European Union (EU), regardless of whether or not they have adopted the euro. 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

Community	Currency	Region	Target date	Notes
Template:Flagicon East African Community	East African shilling	Africa	2012 (not met), 2015 (not met), 2024 (not met), 2031
West African Monetary Zone	Eco	Africa	2027	Inside Economic Community of West African States, planned to eventually merge with West African franc
ASEAN+3	Asian Monetary Unit	Asia	?	a free trade agreements matrix partially established
Cooperation Council for the Arab States of the Gulf	Khaleeji	Arabian Peninsula	?	Oman and the United Arab Emirates do not intend to adopt the currency at first but will do at a later date.
African Economic Community	Afro or Afriq	Africa	2028	Planned for 2028 or later
Brazil, Argentina and possibly other countries	Sur	Latin America	?	As Financial Times reports, Brazil and Argentina will announce in January 2023 that they are starting preparatory work on a common currency "Sur" (South). The initiative would later be extended to invite other Latin American nations.

Disbanded

• between Template:Flagicon Bahrain and Template:Flagicon Abu Dhabi using the Bahraini dinar
• between Template:Flagicon Bahrain, Template:Flagicon Kuwait, Oman, Template:Flagicon Qatar and the Template:Flagicon Trucial States, using the Gulf rupee from 1959 until 1966
• between Aden, Template:Country data South Arabia, Template:Flagicon Bahrain, Kenya, Template:Flagicon Kuwait, Oman, Template:Flagicon Qatar, Template:Flagicon British Somaliland, Template:Flagicon the Trucial States, Uganda, Zanzibar and Template:Flagicon British India (later independent Template:Flagicon India) using the Indian rupee until 1974
• between Template:Flagicon Belgium and the Template:Flagicon Grand-Duchy of Luxemburg (Belgium-Luxembourg Economic Union) using the Belgian/Luxembourgish franc from 1921 to the Euro
• between Template:Flagicon British India and the Template:Flagicon Straits Settlements (1837–1867) using the Indian rupee
• between Template:Flagicon Czech Republic and Template:Flagicon Slovakia (briefly from January 1, 1993 to February 8, 1993) using the Czechoslovak koruna
• between Template:Flagicon Ethiopia and Template:Flagicon Eritrea using the Ethiopian birr
• between Template:Flagicon France, Template:Flagicon Monaco, and Template:Flagicon Andorra using the French franc
• between Template:Flagicon Austria-Hungary and Template:Flagicon Liechtenstein using the Austro-Hungarian krone
• between the Eastern Caribbean, Jamaica, Barbados, Trinidad and Tobago and Template:Flagicon British Guiana using the British West Indies dollar
• between the Eastern Caribbean, Barbados, Trinidad and Tobago and Template:Flagicon British Guiana using the Eastern Caribbean dollar
• between Template:Flagicon Italy, Template:Flagicon Vatican City, and Template:Flagicon San Marino using the Italian lira
• between Template:Flagicon Jamaica and the Template:Flagicon Cayman Islands using the Jamaican pound and later Jamaican dollar
• between Kenya, Uganda, and Zanzibar using the East African rupee
• between Kenya, Uganda, and Zanzibar (and later Template:Country data Tanganyika) using the East African florin
• between Template:Flagicon Kenya, Template:Country data Tanganyika and Template:Flagicon Zanzibar (later merged as Template:Flagicon Tanzania), Template:Flagicon Uganda, Template:Flagicon South Arabia, Template:Flagicon British Somaliland and Italian Somaliland using the East African shilling
• Latin Monetary Union (1865–1927), initially between Template:Flagicon France, Template:Flagicon Belgium, Template:Flagicon Italy and Template:Flagicon Switzerland, and later involving Template:Flagicon Greece, Template:Flagicon Romania, Spain and other countries.
• between Template:Flagicon Liberia and the Template:Flagicon United States using the United States dollar
• between Template:Flagicon Mauritius and Template:Flagicon Seychelles using the Mauritian rupee
• between Nigeria, the Gambia, Sierra Leone, Template:Flagicon the Gold Coast and Template:Flagicon Liberia using the British West African pound
• between Template:Flagicon Prussia and the North German states (1838–1857) using the North German thaler
• between Template:Flagicon Russia and the former Soviet republics (1991–1993) using the Soviet ruble
• between Template:Flagicon Armenia and Template:Flagicon Artsakh using the Armenian dram
• between Template:Flagicon Qatar and all the emirates of the Template:Flagicon United Arab Emirates, except Abu Dhabi using the Qatari and Dubai riyal
• between Template:Flagicon Saudi Arabia and Template:Flagicon Qatar using the Saudi riyal
• between Western Samoa and Template:Flagicon New Zealand using the New Zealand pound
• Scandinavian Monetary Union (1870s until 1924), between Template:Flagicon Denmark, Template:Flagicon Norway and Template:Flagicon Sweden
• between the Template:Flagicon Solomon Islands, Template:Flagicon Papua New Guinea and Template:Flagicon Australia using the Australian dollar
• between Template:Flagicon Australia, Papua, New Guinea, Nauru, the Solomon Islands, and the Gilbert and Ellice Islands using the Australian pound
• between Bavaria, Baden, Württemberg, Frankfurt, and Hohenzollern using the South German guilder
• between Template:Flagicon Spain and Template:Flagicon Andorra using the Spanish peseta
• between Template:Flagicon Trinidad and Tobago and Template:Flagicon Grenada using the Trinidad and Tobago dollar
• between Template:Flagicon Brunei, Template:Flagicon Malaysia, and Template:Flagicon Singapore (1953–1967) using the Malaya and British Borneo dollar
• between Cambodia, Laos, Guangzhouwan, Annam, Tonkin, and Cochinchina (later Template:Flagicon Vietnam) between 1885 and 1952 using the French Indochinese piastre
• between South Africa, Template:Flagicon South West Africa, and Bechuanaland (later independent Template:Flagicon Botswana) using the South African rand
• between Template:Flagicon Egypt, Anglo-Egyptian Sudan, and Mandatory Palestine (until 1926) using the Egyptian pound
• between Template:Flagicon West Germany and Template:Flagicon East Germany between 1 July 1990 and 3 October 1990, as part of a temporary, so-called "Monetary, Economic and Social Union" prior to German reunification.
• between what ultimately became the Template:Flagicon Republic of Ireland and the Template:Flagicon United Kingdom, between 1928 and 1979. The Irish Pound was held at exactly the same value as Sterling for this period, although it was not accepted for payments in the UK.
• Yen Bloc (between 1905 and 1945), between the Template:Flagicon Empire of Japan, the Template:Flagicon Korean Empire, Template:Flagicon Manchukuo, Template:Flagicon Mengjiang, the Template:Flagicon Wang Jingwei regime, and Japanese-occupied Southeast Asia prior to and during World War II.

Never materialized

• proposed Pan-American monetary union – abandoned in the form proposed by Argentina
• proposed monetary union between the Template:Flagicon United Kingdom and Template:Flagicon Norway using the pound sterling during the late 1940s and early 1950s
• proposed gold-backed, pan-African monetary union put forward by Muammar Gaddafi prior to his death

See also

• List of pegged currencies
• North American Currency Union (Amero)

Further reading

• Acocella, N. and Di Bartolomeo, G. and Tirelli, P. [2007], ‘Monetary conservatism and fiscal coordination in a monetary union’, in: ‘Economics Letters’, 94(1): 56–63.

External links

• West Africa opts for currency union
• Economist- Antipodean currencies (Australia and New Zealand)
• Reasons for the collapse of the Rouble Zone
• OECD Development Centre – the Rand Zone