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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.[3]
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.[4]
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.[5][6]
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 |
Central African CFA franc users: |
1945 |
Formal, common policy |
151,978,440 |
| CFP franc |
Issued by the (French) Overseas Issuing Institute |
|
1945 |
Formal, common policy |
552,537 |
| Eastern Caribbean dollar |
Eastern Caribbean Currency Union of the Eastern Caribbean Central Bank (ECCB) and the OECS. |
|
1965 |
- Formal, common policy
- de facto EMU for CSME members[7]
|
625,000 |
| Euro |
International status and usage of the euro |
 Eurozone:
and EU special territories:
|
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 |
|
Managed together by the Monetary Authority of Singapore |
|
1967 |
Formal; currencies mutually exchangeable[8] |
5,137,000 |
| Australian dollar |
|
 Australia
and external territories:
|
1966 |
Informal |
24,557,000 |
| Pound sterling |
Sterling area (former) |
 United Kingdom
and Overseas Territories:
and Crown Dependencies: |
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 |
|
|
1974 |
- Informal
- Nepal minor usage
|
1,352,000,000 |
| New Zealand dollar |
|
 New Zealand
and Realm:
 Pitcairn Islands
|
1967 |
Informal |
4,411,000 |
| Israeli new sheqel |
|
|
1927/1986 |
Informal |
11,738,000 |
| Jordanian dinar[11][12] |
|
|
|
Informal |
8,922,000 |
| Egyptian pound |
|
|
|
Informal |
109,450,000 |
| Russian ruble |
|
|
2008 |
Informal |
142,177,000 |
| South African rand |
Multilateral Monetary Area |
|
1974 |
|
52,924,669 |
| Swiss franc |
|
|
1920 |
|
8,547,015 |
| Turkish lira |
|
|
1983 |
Informal |
75,081,100 |
| United States dollar |
|
 United States
and insular areas:
and Compact of Free Association members:
|
1904 (Panama only) |
Formal for insular areas and sovereign status with Compact of Free Association,[13] 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.[14]
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.[15]
Currency union in Europe
The European currency union is a part of the Economic and Monetary Union of the European Union (EMU). The EMU was formed during the second half of the 20th century after historic agreements, such as the Treaty of Paris (1951) and the Maastricht Treaty (1992). In 2002, the euro, a single European currency, was adopted by 12 member states. Currently, the Eurozone has 21 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.[16]
Disbanded
- between
 Bahrain and  Abu Dhabi using the Bahraini dinar
- between
 Bahrain,  Kuwait,  Oman,  Qatar and the  Trucial States, using the Gulf rupee from 1959 until 1966
- between
 Aden,  South Arabia, Bahrain,  Kenya, Kuwait, Oman, Qatar,  British Somaliland, the Trucial States,  Uganda,  Zanzibar and  British India (later independent  India) using the Indian rupee until 1974
- between
 Belgium and the  Grand-Duchy of Luxemburg (Belgium-Luxembourg Economic Union) using the Belgian/Luxembourgish franc from 1921 to the Euro
- between British India and the
 Straits Settlements (1837–1867) using the Indian rupee
- between
 Czech Republic and  Slovakia (briefly from January 1, 1993, to February 8, 1993) using the Czechoslovak koruna
- between
 Ethiopia and  Eritrea using the Ethiopian birr
- between
 France,  Monaco, and  Andorra using the French franc
- between
 Austria-Hungary and  Liechtenstein using the Austro-Hungarian krone
- between the Eastern Caribbean,
 Jamaica,  Barbados,  Trinidad and Tobago and  British Guiana using the British West Indies dollar
- between the Eastern Caribbean, Barbados, Trinidad and Tobago and British Guiana using the Eastern Caribbean dollar
- between
 Italy,  Vatican City, and  San Marino using the Italian lira
- between
 Jamaica and the  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
 Tanganyika) using the East African florin
- between
 Kenya, Tanganyika and  Zanzibar (later merged as  Tanzania),  Uganda, South Arabia, British Somaliland and  Italian Somaliland using the East African shilling
- Latin Monetary Union (1865–1927), initially between
 France, Belgium,  Italy and  Switzerland, and later involving  Greece,[21]  Romania,  Spain and other countries.
- between
 Liberia and the  United States using the United States dollar
- between
 Mauritius and  Seychelles using the Mauritian rupee
- between
 Nigeria,  the Gambia,  Sierra Leone,  the Gold Coast and Liberia using the British West African pound
- between
 Prussia and the North German states (1838–1857) using the North German thaler
- between
 Russia and the  former Soviet republics (1991–1993) using the Soviet ruble
- between
 Armenia and  Artsakh using the Armenian dram
- between
 Qatar and all the emirates of the  United Arab Emirates, except Abu Dhabi using the Qatari and Dubai riyal
- between
 Saudi Arabia and Qatar using the Saudi riyal
- between
 Western Samoa and New Zealand using the New Zealand pound
- Scandinavian Monetary Union (1870s until 1924), between
 Denmark,  Norway and  Sweden[21]
- between the
 Solomon Islands,  Papua New Guinea and Australia using the Australian dollar
- between 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
 Spain and Andorra using the Spanish peseta
- between
 Trinidad and Tobago and  Grenada using the Trinidad and Tobago dollar
- between
 Brunei,  Malaysia, and  Singapore (1953–1967) using the Malaya and British Borneo dollar
- between
 Cambodia,  Laos, Guangzhouwan,  Annam,  Tonkin, and  Cochinchina (later  Vietnam) between 1885 and 1952 using the French Indochinese piastre
- between
 South Africa, South West Africa, and  Bechuanaland (later independent  Botswana) using the South African rand
- between
 Egypt,  Anglo-Egyptian Sudan, and  Mandatory Palestine (until 1926) using the Egyptian pound
- between
 West Germany and  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
 Republic of Ireland and the 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
 Empire of Japan, the  Korean Empire,  Manchukuo,  Mengjiang, the  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 United Kingdom and 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
References
- ↑ "World Bank" (PDF). WorldBank.org. Retrieved 30 April 2019.
- ↑ Hafner, Kurt A.; Jager, Jennifer. "The Optimum Currency Area Theory and the EMU". Intereconomics. Retrieved 1 April 2021.
- ↑ Enoch, Charles; Krueger, Russell. "Currency unions: key variables, definitions, measurement, and statistical improvement" (PDF). Bank for International Settlements. Retrieved 30 April 2019.
- ↑ Bolton, Sally (10 December 2001). "History of currency unions". The Guardian. Retrieved 30 April 2019.
- ↑ "History of Money in Malaysia: Colonial Notes & Coins". Bank Negara Malaysia. 2010. Archived from the original on 22 July 2011. Retrieved 5 July 2021.
- ↑ Quah, C. H.; Ho, Y. J. (2020). "Economic Feasibility of Malaysia and Singapore-Brunei Monetary Reunion: A Scrutiny during Major Financial Crises". Applied Economics Journal. 27 (1): 23–51.
- ↑ Anguilla and Montserrat are members of OECS currency union, but not of the CSME.
- ↑ To all intents and purposes a monetary union. They are the last two nations whose dollars have remained at par and mutually interchangeable since the days when the Spanish Dollar was the united currency of large areas of the New World and Southeast Asia.
- ↑ Alongside the ngultrum
- ↑ Not official, but freely used as a tender in Nepal, due to primarily the economic flux with India and also the instability caused by that country's civil war.
- ↑ Zacharia, Janine (2010-05-31). "Palestinian officials think about replacing Israeli shekel with Palestine pound". The Washington Post and Times-Herald. ISSN 0190-8286. Retrieved 2018-08-22.
- ↑ Cobham, David (2004-09-15). "Alternative currency arrangements for a new Palestinian state" (PDF). In David Cobham (ed.). The Economics of Palestine: Economic Policy and Institutional Reform for a Viable Palestine State. London: Routledge. ISBN 9780415327619. Retrieved 2018-08-22.
- ↑ "Compact- Title 02 Article 05". www.fsmlaw.org.
- ↑ "Zimbabwe abandons its currency". BBC News. 2009-01-29. Retrieved 2019-10-15.
- ↑ EU Overseas countries and some other territories participate partially in the EU single market per Part 4 of the Treaty on the Functioning of the European Union. Some EU Outermost regions and other territories use the euro of the currency union; others are part of the customs union; some participate in both unions and some in neither.
Territories of the United States, Australian External Territories and Realm of New Zealand territories share the currency and mostly also the market of their respective mainland state, but are generally not part of its customs territory.
- ↑ "Economic and Monetary Union". European Commission. Retrieved 30 April 2019.
- ↑ Asongu, Simplice; Nwachukwu, Jacinta; Tchamyou, Vanessa (2016-08-01). "A Literature Survey on Proposed African Monetary Unions" (PDF). Journal of Economic Surveys. 31 (3): 878–902. doi:10.1111/joes.12174. ISSN 1467-6419. S2CID 38454408.
- ↑ "Public Notice: Information About East Africa Currency Should Be Disregarded" (PDF) (Press release). Bank of Tanzania. 2024-03-04.
- ↑ "A common currency at a later stage of Africa's economic integration". 30 November 2001.
- ↑ "Brazil and Argentina to begin preparations for common currency, Financial Times reports". Reuters. 2023-01-22. Retrieved 2023-01-22.
- 1 2 Bolton, Sally (10 December 2001). "A history of currency unions". guardian.co.uk. Retrieved 26 February 2012.
France persuaded Belgium, Italy, Switzerland and Greece
- ↑ Not currently on any political agenda, based mostly off conspiracy theories.
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