The Theories Of Optimum Currency Area: A Critical Review

Authors : Murat PÜTÜN

Pages : 177-192

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Publication Date : 2014-10-12

Article Type : Review Paper

Abstract :The subject matter of monetary unions has long attracted academics; yet the debate based on the theoretical grounds has commenced only after the publication of Mundell‟s Seminal Paper in 1961. The title of the article was, “A Theory of Optimum Currency Areas.”, through which Mundell studied the optimal conditions or criteria required for countries to join a currency area with the others with the intention of linking their monetary policy that of other members of the monetary union. The theoretical argument continued after the publication of Mundell‟s article; the argument picked on a new flavor by the extensive views of M McKinnon (1963) and Kenen (1969). Each view respectively focuses on the likely costs and benefits of participation in an Economic and Monetary Union scheme. The theoretical debate started in 1960s incidentally paved way to discussion of the feasibility of Economic and Monetary Union in Europe as early as 1969 that marks the announcement of Werner Report. Werner Report (1969) focuses on the intention of gradual realization of a Monetary Union for EEC countries. Bretton Exchange Rate Regime came into existence immediately after Second World War. It is widely held that this regime has been instrumental in providing stability to the global economy from the time it came into force right until the late 1960s.
Keywords : Exchange Rate Mechanism, Optimum Currency Area, Economic and Monetary Union, European Union, Fixed Exchange Rate Regimes