What Features Determines an Optimum Currency Area?

  • September 2014
  • Posted By Ninoslav
  • 0 Comments

Optimum currency area is often bigger than a country. However in theory an optimum currency region can be smaller than a country. Renowned economists have argued that in United States, many areas can increase the value of currency but few places are not fit to cater the features of optimum currency region.

Features that denote a successful currency area are as follows:
When participant countries have smaller business cycles they are more likely to follow a comparatively larger country when its economy is in boom or in recession. At that point of time central bank and government helps in flowing out money and promote growth during bad times and manage booms in inflation.

A fiscal transfer mechanism to help out adversely affected areas is also a vital feature.

Mobility, price and wages across regions should be flexible. Money, goods and other necessities should be automatically distributed to places where there are real needs.

There should be proper mobility of labor as well. No barriers should be erected to stop mobility of workers.

When Euro was adopted, European Union had none of the criteria to be an optimum currency area (OCA). Eventually Europe score well in some characteristics of OCA.

United States of America on the other hand was divided into eight parts. Five regions out of eight successfully carried all characteristics of OCA. But the other three was not fit or never matched the criteria of OCA.

Optimum Currency Area helps in maintaining a well economic balance in a particular region. If all the factors of OCA is successfully fulfilled a place is sure to be succeed. After all people and the economic condition holds a huge contribution in maintaining the equilibrium of a country or a place. However, it must be remembered development encourages and give rise to frauds. Similarly, economically developed region would automatically invite frauds fake money circulation. So it would be better to learn “How counterfeit money can be detected by detectors”.

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