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Comments on "Currency unions"

Started by krishna, March 09, 2023, 04:29:04 PM

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krishna

Unified Currency : Rupa - The Currency of South Asia

Got the below text from above link

During better days

Rupa was the proposed name of the common currency of SAARC nations. Rupa was selected because most of the South Asian countries are using a currency called the "rupee". Sri Lanka, Nepal, Bhutan, Pakistan, and India have a currency called the rupee. Maldives' currency is the Rufiyaa. Only Bangladesh has the Taka. So, the name Rupa seems to be a logical choice. But the question is how viable is the idea of a unified currency in South Asian countries? SAARC countries do not share very good relations between them. But, experts feel that a common currency will go a long way in removing mistrust and forging ties. The single currency will contribute significantly to further market integration. It will increase market transparency by making prices more easily comparable.

<k>

Quote from: krishna on March 09, 2023, 04:29:04 PMRupa was the proposed name of the common currency of SAARC nations. Rupa was selected because most of the South Asian countries are using a currency called the "rupee". Sri Lanka, Nepal, Bhutan, Pakistan, and India have a currency called the rupee. Maldives' currency is the Rufiyaa. Only Bangladesh has the Taka.

And Indonesia has the rupiah.
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krishna

Syria, Turkey, Egypt, Jordan and Palestine were in loose currency unions at different points from 1920 to 1965, under the influence of the French and British, after the collapse of the ottoman empire

<k>

Quote from: krishna on March 09, 2023, 04:39:27 PMSyria, Turkey, Egypt, Jordan and Palestine were in loose currency unions at different points from 1920 to 1965, under the influence of the French and British, after the collapse of the ottoman empire

Were the French and British currency zones separate?
Visit the website of The Royal Mint Museum.

See: The Royal Mint Museum.

Figleaf

Well, if you go down in colonial history, Lebanon used Syrian colonial coins when both were French protectorates.

Those stories of common currencies are not to be taken seriously. To keep currencies pegged - the prerequisite of a common currency - you must have government budget discipline. You are still smarting on how £ fell out of the Exchange Rate Mechanism in 1992. I can't see a situation with that kind of risk of painful failure being created between India and Pakistan, let alone the smaller states, both with smaller reserves than the BoE in 1992.

Peter
An unidentified coin is a piece of metal. An identified coin is a piece of history.

<k>

Quote from: Figleaf on March 09, 2023, 05:05:57 PMYou are still smarting on how £ fell out of the Exchange Rate Mechanism in 1992.

The UK is not smarting. We learnt a valuable lesson: stay out of the euro. In any case, John Major was overambitious and took the UK into the ERM at too high at rate. It was unrealistic and greatly exacerbated our economic recession at that time. Also, Karl Otto Pöhl was briefing against the UK. Powerful figures in the Bundesbank did not want the UK in.
Visit the website of The Royal Mint Museum.

See: The Royal Mint Museum.

<k>

Here I quote my earlier words about Wikpedia's defintion of an INFORMAL currency union:

Quote from: <k> on March 08, 2023, 08:39:44 PMInformal. This involves the unilateral adoption of a foreign currency.

For instance, Kosovo and Montenegro have unilaterally adopted the euro.

They did this without any prior arrangement with the EU or the eurozone countries.

The more I think about it, the less I like it. Surely a currency union implies a unified currency? A "dollarised" country that uses some other country's currency without formal permission does not represent a currency union, in my view.
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chrisild

Quote from: <k> on March 09, 2023, 06:26:10 PMA "dollarised" country that uses some other country's currency without formal permission does not represent a currency union, in my view.

Agreed. Then again, from a practical POV (certainly that of a tourist) it does not matter much whether two countries you visit have the same currency due to some formal agreement, or whether country B simply uses whatever A has. ;)  Cash supply might be an issue (B would have to get coins and notes from A), but that is not really that relevant any more.

africancoins

The "informal" currency union... I thought surely someone has a better phrase, perhaps "unilateral". A search on "unilateral currency union" found:-

https://academic.oup.com/book/25698/chapter-abstract/193175312?redirectedFrom=fulltext

So "unilateral currency union" and "multilateral currency union" rather seem to be established terminology.

Thanks Mr Paul Baker

<k>

Yes, "unilateral currency union" sounds more precise than an "informal" currency union.

However, I would expect a currency union to mean a unification of two or more currencies. That is exactly what happened in the case of the euro. But when one country simply decides to use another country's currency without formal permission - that doesn't deserve to be dignified with the term "currency union", in my view.
Visit the website of The Royal Mint Museum.

See: The Royal Mint Museum.

Figleaf

In normal cases a unilateral decision to use the currency of another country must be flanked by an agreement with that country, because the supply of banknotes and possibly coins must be secured. Low denomination banknotes must be replaced quickly. There must be a mechanism that lets banknote shipments sail through export procedures, regularises orders and payments from another country for banknotes and possibly the destruction of used banknotes. Making pegged currency coins locally (Panama, Zimbabwe) could circumvent the issue of high shipping cost for coins. Flyspeck countries would not have such a problem to the same extent.

Peter
An unidentified coin is a piece of metal. An identified coin is a piece of history.

krishna

Quote from: Figleaf on March 10, 2023, 09:13:08 AMIn normal cases a unilateral decision to use the currency of another country must be flanked by an agreement with that country, because the supply of banknotes and possibly coins must be secured. Low denomination banknotes must be replaced quickly. There must be a mechanism that lets banknote shipments sail through export procedures, regularises orders and payments from another country for banknotes and possibly the destruction of used banknotes. Making pegged currency coins locally (Panama, Zimbabwe) could circumvent the issue of high shipping cost for coins. Flyspeck countries would not have such a problem to the same extent.

Peter

But don't these countries stand at a huge disadvantage, as they loose total money supply regulation, control over interest rate, a difference in purchasing power, and loss of central bank functions

Since they are net importer countries, they must be pledging their gold for injection of extra dollars in their system

The dollar may be convenient today, but the country becomes rudderless, when it comes to an economic direction

Figleaf

Very good point. The answer is to a large degree trust and to some degree convenience.

In the case of Panama, convenience played a large role. The economy was dominated by Panama canal income, which was (and probably still is) a financial flow determined by the US and its economy. Adopting the dollar eliminated the currency risk (the risk of a change in the exchange rate) for Panama and gave it an advantage of financial stability as well as easy trading with dollar zone economies. Similar for the FFA franc countries.

Zimbabwe is a case of zero trust in its own money as a consequence of no trust in the government. If Zimbabwe had started a currency of its own after the Mugabe debacle, it would likely not have been accepted as money and led to more financial chaos and social unrest.

Argentina had a similar solution. The currency was pegged to USD and the state could issue only as much Argentine money as it held USD. An Argentine banknote could at any time be exchanged for an equivalent amount in USD. This worked well, until it was discovered that lower Argentine governments had undermined the system by issuing "bonds" the size of banknotes that became accepted in circulation.

You can have different mixes of convenience and trust in one system. Germany and the Benelux countries acceded to the € zone to facilitate trade, while lack of trust in the government was arguably a significant factor in Greece and Italy, as well as to a lesser degree in Spain and Portugal.

Peter
An unidentified coin is a piece of metal. An identified coin is a piece of history.

krishna

currency unions seem to be just like group assignments, some are there for gaining footing among fellow mates, some are just there for piggybacking, and some join as no one else wants to take them

on another tangent

in early British administered Australia, they were using Spanish dollars (holey coins), some counter stamped coins of India and other countries, they could get their hands on (the royal Australian mint article link is attached)
https://www.ramint.gov.au/sites/default/files/Australian%20coins%20a%20fascinating%20history.pdf

another major co-currency is Countermarked 1 Thaler/Austria coins of the gulf states, African countries and some Asian countries

Figleaf

Quote from: krishna on March 10, 2023, 05:55:21 PMon another tangent

another major co-currency is Countermarked 1 Thaler/Austria coins of the gulf states, African countries and some Asian countries

AFAIK most, if not all of those are modern concoctions. :o

Don't let it get you down. You are on the right track. Some coins were used internationally, because they were conveniently accepted in many places. See my presentation here.

Australia is just a particular case of Spanish colonial coins used elsewhere. In fact, the most widely used "currency' in the early years of Australia as a colony was not even cut up pieces of eight, but whole barrels of rum. Embarrassing today, maybe, but there is even a rum hospital in Sydney, so named for the way it was financed. Fittingly, part of that building housed the Sydney mint for some time.

Peter
An unidentified coin is a piece of metal. An identified coin is a piece of history.