Saturday, 31 March 2012: 2:15 PM
The theory of optimum currency areas, suggesting the redrawing of currency areas across countries or splitting of national money into several currencies, is at odds with the one-money-one-country pattern that has dominated monetary history for twenty-six centuries. This paper puts forward an equilibrium approach (section 1) which, by stressing the influence of the border effect on intranational adjustment, solves the puzzle and analyzes the closely related issues of the viability of monetary unions (section 2) and regional specialization (section 3).