Hi, I am looking for someone to write an article on what are the main benefits and costs of monetary union what are the main criteria for the optimality of a currency area Paper must be at least 500 words. Please, no plagiarized work! Monetary Union & Section # of What are the main benefits and costs of monetary union? Monetaryunion is an important method of integration in which many nations join hands to form a single market and single currency system to reap bigger benefits of trade. Europe Union is an example of monetary union in which Euro is the currency of the nations in Euro Zone (BBC World Service, 1998). There are some benefits and some cost in joining such kind of union. Below are the important costs and benefits of monetary union: (University of North Carolina, 2009).
Benefits of Monetary Union:
One of the important benefits of monetary union is that it eliminate exchange rate between the member countries. Thus it eliminates a big hurdle in the way of trade. At the same time, countries get free from any exchange rate uncertainty. get smaller rates of transactions and more secure price transparency.
A neutral body acts as central bank on behalf of all member nations of the monetary union. This body being neutral and free from influence of any nation makes it credible for not only all members of the monetary union, but also for outside world. For example, European Central Bank acts as a combined central bank of the European Union.
Monetary union is the way of promoting greater economic alliance which is beneficial for all member states and the outside world. For example, it is easy today to deal with a group of 28 countries of Europe at a single platform named European Union.
Monetary union of nations, being a group, is considered more important than that of a single nation. Such kind of unions provides group of nation to play active role in the world affairs.
Costs of Monetary Union:
Monetary union can cause economic fluctuation, budget deficits and not suitable monetary policy if a country is not an optimal currency area.
There is a possibility of any moral or cultural hazard due to differing believes among the nations.
A common dilemma of economic and monetary union is the fact that an individual member country of the union loses its identity and cultural significance.
What are the main criteria for the optimality of a currency area?
Optimal currency area is also known as optimal currency region. This area refers to single market areas having a single currency across the region. There are many elements that define the optimality of a currency area (Alexandre Swoboda, 1999). It is important to have these elements to become the member of an optimal currency area. So following is the main criteria for the optimality of a currency area: (University of North Carolina, 2009)
A country must provide free entry and free exit to labor and capital to become part of an optimal currency area.
A country must provide price and wage flexibility throughout the boundaries of the union members to become part of an optimal currency area.
A country must provide the authorities and governments to transfer funds or adjust taxation throughout the boundaries of the union to become part of an optimal currency area.
University of North Carolina. (2009).Costs and Benefits of Joining a Monetary Union. [online].
UNC.edu. . [14th April 2015]
University of North Carolina. (2009). Optimal Currency Area (OCA). [online]. UNC.edu
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Alexandre Swoboda. (1999). Robert Mundell and the Theoretical Foundation for the European
Monetary Union. [online]. International Monetary Fund’website: IMF.org.
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BBC World Service. (1998). Special Report EMU: The Advantages. [online] BBC’s website: