Dollarization

  • Alesina A
  • Barro R
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Abstract

More recently, the identification of currencies with countries has weakened and the discussion has shifted toward one of the desirable forms and sizes of currency unions. Roughly 60 small countries or territories have for some time been members of currency unions or have used a large country's money. In this paper, the authors discuss the pros and cons of currency unions and extend the classic analysis of optimum currency areas from Robert A. Mundell (1961). One consideration, not touched on in Mundell's economic analysis, is that individual currencies are sometimes valued simply out of national pride. From an economic standpoint, the strongest argument that Mundell identified for individual money is that it allowed a country to pursue its own monetary policy. [ABSTRACT FROM AUTHOR]

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Authors

  • Alberto Alesina

  • Robert J. Barro

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