Abstract
A key role of money is to facilitate transactions and thereby to increase economic efficiency relative to a situation of barter. Moreover, the social benefit derived from money is enhanced by stability in its value, that is, by price stability. The widest possible use of a single money that exhibits such stability minimizes transactions cost. Indeed, this argument has motivated the call for a single world money, or global currency area (for example, Cooper, 1991). In the next section, criteria that define “optimum currency areas” are discussed, and reasons are offered as to why the global economy is not likely to be such an area. Nevertheless, regional groups of countries may find it advantageous to move to a common currency to reduce both transactions costs and the unfavorable effects of exchange rate uncertainty on trade and investment—provided that each such regional currency exhibits price stability.
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