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What can one know About an Optimum Currency Area?

  • July 2014
  • Posted By Ninoslav
  • 0 Comments

Years ago, people believed that each nation’s currency trends in its homeland only, and needs to be exchanged in off-shore areas. But recent economic theories propose that quite an amount of geographical area can be influenced by a single currency. And that area is not bounded by any national borders. Such an idea formed the basis of Optimum Currency Area, or OCA.

Haven’t heard of such a term before? Well, if you haven’t, another term that is used for OCA is OCR, or Optimal Currency Region.  Well, OCA or OCR, the basics are same. Such a thing can be achieved in two ways – either by merger of currencies, or adoption of a single currency for multiple nations.

Real world example of OCA/OCR

Well, if you believed that such a thing would remain only as a theory, don’t be shocked to hear that this thing has become reality as well.  And how so, you may ask? Well, the dice was rolled when major European countries came together and formed a body known as EU, or the European Union. Among the various decisions taken by this entity, one was the creation of a singular currency that would trend across all the member nations.

And thus was born the Euro, a classic example of OCA being implemented in the real world. This was the example of a situation when OCA can cover areas beyond international borders. However, in theory, OCA can be smaller than a single country also. Some economists have demonstrated certain areas of USA as an example.

Two names which have been associated in this regard are Abba Lerner and Robert Mundell. Reading about them would give more profound ideas about Optimal Currency Area. However, for a change of taste, you should consider reading about “What are the banes of Counterfeit Money worldwide”.

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