Optimum Currency Area Theory
Categories: Econ
Ever been lost in translation? (Great movie starring Bill Murray, directed by the daughter of the guy who did Apocalypse Now and The Godfather.)
Different languages make everything hard. What if we just did away with all languages, and instead came up with one language everyone spoke?
The optimum currency area theory is like that, but with money.
The optimum currency area theory theorizes that, if more areas shared the same currency, it would benefit those areas, and would maximize economic efficiency. In the same way that translating languages is a friction, so too is converting currencies...plus other lesser-known forces from multiple currencies.
Since the idea was put forth, economists...and the world...have toyed with the optimum currency area theory. In Europe, the creation of the euro as a common currency created the eurozone, banking on the idea of further economic efficiency and benefits. Some economists studying this area think some areas would benefit from sharing a like currency, while other areas wouldn’t.