DP595 Voting on the Adoption of a Common Currency

Author(s):	Alessandra Casella
Publication Date:	October 1991
Keyword(s):	Common Currency, Transaction Costs, Voting
JEL(s):	F15, F33
Programme Areas:	International Macroeconomics
Link to this Page:	cepr.org/active/publications/discussion_papers/dp.php?dpno=595

Two countries adopting a common currency share the same monetary policy and save on transaction costs. This paper studies the impact of these two factors on the composition of markets. The establishment of a monetary union alters the boundaries between domestic and international markets and triggers distributional effects, creating disagreement among citizens over the desirability of the union. The outcome of a referendum on the choice between national currencies and monetary union depends on the country's level of development, suggesting that a common currency will be favoured by a majority of traders in both countries only at a particular stage.