Regional currency areas and the use of foreign currencies

BIS Papers No 17
May 2003

Abstract

Arrangements that replace independent national currencies (regional currency areas, currency boards, official or unofficial use of a foreign currency) have become increasingly popular. However, they raise at least three broad questions. First, do their benefits (notably lower transactions costs) exceed the costs (reduced policy flexibility)? Second, which of these regimes is most suitable for a particular economy? Third, must institutions be developed to ensure economic convergence and other complementary measures that will guarantee the success of a common currency, or are convergence and complementary measures a likely consequence of adopting a common currency?

Senior central bankers from Africa, Asia, Europe, the Middle East and the United States discussed experiences and research on these questions at a two-day meeting held at the BIS in September 2002. The first day focused on economic issues and the second on legal and practical issues.

Table of contents	Page
Table of contents, list of participants (PDF: 4 pages, 117 kb)	iii
Introduction (PDF: 3 pages, 62 kb) John Hawkins and Paul Masson	1
Economics
Economic aspects of regional currency areas and the use of foreign currencies (PDF: 39 pages, 371 kb) John Hawkins and Paul Masson	4
Europe
Regional currency areas: a few lessons from the experiences of the Eurosystem and the CFA franc zone (PDF: 16 pages, 202 kb) Marc-Olivier Strauss-Kahn	42
The currency board and monetary stability in Bosnia and Herzegovina (PDF: 3 pages, 86 kb) Dragan Kovacevic	58
Shadowing the euro: Bulgaria's monetary policy five years on (PDF: 18 pages, 164 kb) Kalin Hristov and Martin Zaimov	61
Monetary policy and management of capital flows in a situation of high euroisation - the case of Croatia (PDF: 20 pages, 273 kb) Boris Vujcic	79
Malta's exchange rate arrangements - a medium-term perspective (PDF: 6 pages, 47 kb) David Pullicino and Alfred Demarco	99
Middle East
The Gulf Cooperation Council monetary union: a Bahraini perspective (PDF: 3 pages, 22 kb) Khalid Al-Bassam	105
Monetary policy in Qatar and Qatar's attitude towards the proposed single currency for the Gulf Cooperation Council (PDF: 7 pages, 83 kb) Fahad Faisal Al-Thani	108
A common currency area for the Gulf region (PDF: 5 pages, 92 kb) Muhammad Al-Jasser and Abdulrahman Al-Hamidy	115
Concrete steps towards the establishment of a monetary union for the Gulf Cooperation Council countries (PDF: 2 pages, 16 kb) Mohammed Ali Bin Zayed Al Falasi	120
Africa
Botswana's exchange rate policy (PDF: 6 pages, 52 kb) Kealeboga Masalila and Oduetse Motshidisi	122
Regional currency areas and the use of foreign currencies: Lesotho's experience (PDF: 6 pages, 45 kb) Tabo Foulo	128
South Africa's experience of regional currency areas and the use of foreign currencies (PDF: 6 pages, 42 kb) Lambertus van Zyl	134
Regional currency areas and use of foreign currencies: the experience of West Africa (PDF: 5 pages, 38 kb) Michael Ojo	140
Regional currency areas: lessons from the West African sub region and Nigeria's policy stance (PDF: 6 pages, 47 kb) Ernest Ebi	145
Other regions
The ASEAN currency and exchange rate mechanism task force (PDF: 1 page, 13 kb) Ooi Sang Kuang and Sukhdave Singh	151
The use of foreign currencies: the United States perspective (PDF: 2 pages, 48 kb) David Howard	152