Form Currency Unions to a World Currency: A Possibility?

Abstract

The purpose of this paper is to analyze the main macroeconomic determinants of benefits and costs by undertaking processes of monetary integration and to investigate the possibility that currency unions could lead to the creation of a global currency in the future. In particular, we will consider two main determinants of costs and benefits predicted by the theory of Optimum Currency Areas: (i) the business-cycle correlation between the candidate’s economy and that of the currency zone as a whole, and (ii) the candidate economy’s inflation gain. Using this methodology, the results of the paper provide empirical evidence of the existence of several optimal currency areas in the world. Moreover, the creation of a world common currency area is not as unrealistic as it might seem at first sight.