Currency Unions

Currency Unions
by Alberto Alesina And Robert J. Barro

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Book Description

A group of internationally prominent China scholars held a conference at the Hoover Institution in December 1994 to discuss how U.S. policy can best respond to recent changes in China and made clear that a "get-tough" policy would ultimately fail. This volume presents, in ten authoritative chapters, the first comprehensive overview of this complex topic—along with sound reasoning to support its provocative conclusion. The end of the cold war left the United States as the world's only superpower, but greater China was already in the throes of major change. As a post-Mao People's Republic gradually shifted from totalitarianism to a "socialist market economy," Taiwan underwent an "economic micracle" and then democratized. Hostilities between these two governments subsided, but America remained faced with Beijing's continuing authoritarianism and human rights abuses. In light of these circumstances, what posture should U.S. foreign policy adopt in dealing with China: confrontation or cooperation? Indeed, is such a clear-cut choice possible? Thomas A. Metzger and Ramon H. Myers assembled the participants, weaving an overview of this whole problem and concluding that the United States should try to nurture harmonious relations with China. The papers included here analyze the recent evolution of Chinese foreign policy toward Taiwan, Taiwan's development and policy on unification, security and economic issues, and the diplomatic visions that will affect the future of greater China. As a whole, this book coherently formulates the principles that should guide U. S. policy toward greater China in the next decades.

From the Publisher
Most of the nearly two hundred countries in the world today have their own currency. This pattern fits with the conventional view that each country is supposed to have its own money. More recently, especially with the adoption of the euro, countries have become more willing to consider the idea of a currency union, in which more than one economy shares a common money. For smaller countries, this setup usually entails the use of another country’s money, such as the U.S. dollar or the euro. Thus, the concept of "one country, one currency" has been called into question, and discussion has shifted toward one of desirable forms and sizes of currency unions.

In May 2000, about two dozen economists assembled at the Hoover Institution to consider basic conceptual issues about currency unions. This volume summarizes the conference papers. The contributors—all experts on international monetary policy—provide theoretical analyses of currency unions and other monetary regimes, including flexible and fixed exchange rates. The papers also assess the available empirical evidence on the performance of these alternative monetary systems. The authors then draw some policy conclusions on the desirability of currency unions for countries in various circumstances.

Currency Unions reviews the traditional case for flexible exchange rates, namely that it allows for an independent monetary policy. The usual view is that this policy should be countercyclical—expansionary during recessions and contractionary in booms—and should particularly help to insulate an economy from terms-of-trade shocks. The book looks at the pitfalls of flexible exchange rates and why fixed rates—particularly full dollarization—might be a more sensible choice for some emerging-market countries. The contributors also detail the factors that determine the optimal sizes of currency unions, explain how a currency union can expand the volume of international trade among its members, and examine the recent implementation of dollarization in Ecuador.

Alberto Alesina is a professor of economics and government at Harvard University, with a specialty in political economy. Robert J. Barro is a senior fellow at the Hoover Institution and the Robert C. Waggoner Professor of Economics at Harvard University.

Contributors: Alberto Alesina, Robert J. Barro, Eduardo Borensztein, Christian Broda, Guillermo A. Calvo, Felipe Céspedes, Roberto Chang, Charles Engel, Stanley Fischer, Jeffrey A. Frankel, Maurice Obstfeld, Carmen M. Reinhart, Kenneth Rogoff, Andrew K. Rose, Andrés Velasco, Jeromin Zettelmeye

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