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When a Monetary Union Fails: A Parable

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  • Guillaume Cheikbossian

Abstract

The political imperative is an important driving force behind the dissolution of monetary unions. But economic factors are also likely to play an important role. Using a two-country model of government finance in a common currency area, we suggest that when countries are very heterogeneous in terms of financing requirements or in terms of tolerance for inflation, one of them will benefit from achieving monetary independence. The results are contrasted to the breakup of the Austro-Hungarian crown area in the 1920s and especially to that of the ruble area in the 1990s. Copyright Kluwer Academic Publishers 2001

Suggested Citation

  • Guillaume Cheikbossian, 2001. "When a Monetary Union Fails: A Parable," Open Economies Review, Springer, vol. 12(2), pages 181-195, April.
    • Handle: RePEc:kap:openec:v:12:y:2001:i:2:p:181-195
    DOI: 10.1023/A:1008384413848
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    References listed on IDEAS

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    1. Rudiger Dornbusch, 1992. "Monetary problems of post-communism: Lessons from the end of the Austro-Hungarian empire," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 128(3), pages 391-424, September.
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    5. Aizenman, Joshua, 1992. "Competitive Externalities and the Optimal Seigniorage," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 24(1), pages 61-71, February.
    6. Mr. Thomas A. Wolf, 1994. "Currency Arrangements in Countries of the Former Ruble Area and Conditions for Sound Monetary Policy," IMF Policy Discussion Papers 1994/015, International Monetary Fund.
    7. Andrabi, Tahir, 1997. "Seigniorage, Taxation, and Weak Government," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 29(1), pages 106-126, February.
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    Cited by:

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    2. Durevall, Dick, 2011. "East African Community: Pre-conditions for an Effective Monetary Union," Working Papers in Economics 520, University of Gothenburg, Department of Economics.

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