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.

Introduction

Introduction

Economics

Economic aspects of regional currency areas and the use of foreign currencies

Europe

Regional currency areas: a few lessons from the experiences of the Eurosystem and the CFA franc zone
The currency board and monetary stability in Bosnia and Herzegovina
Shadowing the euro: Bulgaria's monetary policy five years on
Monetary policy and management of capital flows in a situation of high euroisation - the case of Croatia
Malta's exchange rate arrangements - a medium-term perspective

Middle East

The Gulf Cooperation Council monetary union: a Bahraini perspective
Monetary policy in Qatar and Qatar's attitude towards the proposed single currency for the Gulf Cooperation Council
A common currency area for the Gulf region
Concrete steps towards the establishment of a monetary union for the Gulf Cooperation Council countries

Africa

Botswana's exchange rate policy
Regional currency areas and the use of foreign currencies: Lesotho's experience
South Africa's experience of regional currency areas and the use of foreign currencies
Regional currency areas and use of foreign currencies: the experience of West Africa
Regional currency areas: lessons from the West African sub region and Nigeria's policy stance

Other regions

The ASEAN currency and exchange rate mechanism task force
The use of foreign currencies: the United States perspective