Comments on "Currency unions"

[<k>]

There are different ways of looking at this issue.

You can have a national currency or a plurinational currency. A plurinational currency is used by two or more countries and / or territories. By territory I mean a polity that is a dependency of a sovereign state. For instance, Gibraltar is a British oversea territory, as is Bermuda.

You can have a single currency monetary union or a pluricurrency monetary union. The eurozone is a single currency monetary union. Singapore and Brunei operate a dual currency monetary union: the Singapore dollar and the Brunei dollar co-circulate and are interchangeable.

You can have an asymmetric pluricurrency monetary union. South Africa, Eswatini, Lesotho and Namibia operate an asymmetric pluricurrency monetary union. The South African rand, the Swazi lilangeni, the Lesothan loti and the Namibian dollar are all equal in value and exchangeable at par. However, of those currencies only the rand is legal tender and accepted in South Africa. The other countries accept the rand, in addition to their own currency. That is why I call theirs an asymmetric pluricurrency monetary union.

The following UK dependencies and overseas territories exist in an asymmetric currency monetary union with the UK: Jersey, Guernsey, Isle of Man, Gibraltar, Falkland Islands, and St. Helena and Ascension. UK coins and banknotes are accepted in all these places. Jersey and Guernsey accept each others coins and notes, but none of the other dependencies and overseas territories do: Falklanders will not accept Gibraltarian money, and vice versa, etc.

Next you must consider whether a currency union is authorised or unauthorised (unilateral). The dollarised countries exist in an unauthorised single currency monetary union with the USA.

Then you have the physical forms of an unauthorised single currency monetary union. Do dollarised countries issue their own national coinage alongside US dollars? Yes, in the case of Panama and Timor Leste. If so, do US coins circulate alongside the national coins? Yes, in the case of Panama; no, in the case of Timor Leste.

Does a single currency monetary union allow for national variations in the coinage or banknotes? In the case of the East Caribbean dollar, no, but in the case of the eurozone, the coins have national sides alongside a common side, but the banknotes are uniform.

[Pabitra]

What about Bhutan and Nepal accepting Indian currency?

Saharwi Arab Republic using Morroco currency?

[<k>]

What about Bhutan and Nepal accepting Indian currency?

Saharwi Arab Republic using Morroco currency?

That doesn't make them a currency union, especially since there is not a one-to-one correlation in their currencies'  values. These are just local arrangements and no doubt unofficial. And Sahrawi Arab Republic is not widely accepted as a country, anyway.

[Pabitra]

Bhutan Ngultrum is maintained 1:1 parity with INR.
Nepal Rupee is maintained 160:100 parity with INR.
Saharwi Arab lets its currency fluctuate but accepts Morocco currency in its bank.

[<k>]

Bhutan Ngultrum is maintained 1:1 parity with INR.

OK, I'll accept that.

Nepal Rupee is maintained 160:100 parity with INR.

Well, that's cheating.

Sahrwai Arab lets its currency fluctuate but accepts Morocco currency in its bank.

Then that is most definitely not a currency union, but just an exchange arrangement.

[chrisild]

Adding the SADR to this topic is problematic anyway, as the Sahrawi peseta is used (if at all) in a small part of the, hmm, country only. In the territories annexed by Morocco, the dirham is used. The Sahrawi peseta has a fixed euro exchange rate, and peseta coins exist. But I suppose that neither the "euro peg" nor the coins have much practical relevance.

[<k>]

Must we assume that any country with a hard peg to another currency is in a unilateral currency union? And must we also assume that they therefore run a currency board and not a central bank - even if they have a national bank with the title of "Central Bank" ?

[<k>]

Do currency unions have any disadvantages? Our forum member chrisild has occasionally mentioned one. A national coinage usually has between two (Liberia) and nine different denominations. The euro has eight denominations and 24 different sets of national sides. That means that a citizen of the eurozone can in theory potentially encounter up to 192 different coin types in circulation. Then there are the various circulating commemorative 2 euro coins. Small wonder that chrisild has mentioned that people in the eurozone sometimes get confused as to whether a coin is real or a forgery. Just imagine if somebody tried to pass one of those Catalan euro-type fantasies of a few years back. They might well get away with it.

The British crown dependencies and a few overseas territories are in an asymmetric currency union with the UK. They use their own banknotes and coins, denominated in pounds and pence, and also accept UK coins and notes. However, their banknotes and coins are not legal tender in the UK. Inevitably some of their coins stray into the UK. If shop assistants recognise them as non-UK coins, they will reject them. However, their similar size and shape mean that they are often mistaken for UK coins, and they are therefore accepted.

I live in London, and a couple of weeks ago a shop passed me a 1997 Isle of Man TT 50 pence in change. I recognised it immediately when it was being given to me, but I just accepted it. I didn't want to keep it, so the next day I passed it back to the same shop, and it was accepted. The Pitcairn Islands recently issued collector 50 pence coins, even though the pound is not legal tender there - the New Zealand dollar is used instead. In the UK, there are so many legitimate commemorative 50 pence types in circulation that I can imagine that you could pass a Pitcairn Islands 50 pence in change, and the shop assistant would likely accept it, mistaking it for a UK coin.

On one occasion I was in a queue in a shop when the assistant rejected a 50 pence coin that the woman in front of me had given her. The woman looked quite shocked and distressed on being told that it wasn't a British coin and stood looking at it. I asked to see it. It was a Jersey 50 pence. I already had one in my collection, but I asked her if I should change it for her. She seemed relieved and readily accepted, and her face lit up when I gave her a UK 50 pence. "There you are", I said. "Two happy people!" She gave me a big smile then, but I couldn't help wondering why she was so concerned about a mere 50 pence, even though this was around 1998, when 50 pence bought considerably more than now. She was well dressed and certainly didn't look hard up.

[<k>]

See:  Currency unions.

[<k>]

Looking to the future, two issues arise.

1] Who will be the next country to lose its own currency by joining the euro? Probably Bulgaria. After that, I expect that Bosnia, North Macedonia and even Serbia and maybe Moldova will aspire to join the euro zone.

2] What new currency unions can we realistically expect to be created by the end of this decade? I know that ideas are being floated in Latin America, sub-Saharan Africa, and the Arab countries of West Asia. One problem is that the current world order seems to be in turmoil right now. That does not augur well for new and stable currency unions.

[Figleaf]

I think it is probable that Ukraine will want to become part of Euroland as soon as possible. The timing will likely depend to a large extent on external financial support for reconstruction and the success of the fight against corruption in the financial and government sectors.

Peter

[<k>]

So who does that leave? Denmark has an opt-out and will not join. Sweden does not want to join the euro zone. Poland and Hungary are increasingly nationalistic and will resist joining. I do not know what Romania's wishes are. I am surprised that the Czech Republic has not joined the euro zone yet.

[Figleaf]

See this thread. Poland and Hungary indeed have a populist government, but that tells you exactly nothing about their future.

The Orban government is long in the teeth, unpopular and exposed as deeply corrupt. Most Hungarians are normal people who don't want to be represented by a gang of profiteering crooks.

Poland's admirable effort to help Ukraine and its fugitives has educated lots of Poles on the value of being internationalist in general and part of the EU in particular, but it has also given quite a few people in Brussels new insights and created quite some goodwill for Poland.

Peter

[<k>]

Thank you, Figleaf. Prague is "sclerotic", you say in the linked topic.

[chrisild]

Right, Hungary, Poland and Sweden (maybe others too) are not interested in joining the euro area. Up to them. In my opinion the discussion about what currency union will be created or enlarged next is difficult and not very fruitful as long as we do not have facts, or at least government statements, to base it on. Side note: Countries that are not even EU member states (North Macedonia, etc.) will have a hard time getting in the euro area.