Monetary union
Also called: Currency union · Topic: International Trade Policy, WTO and Intellectual Property · NCERT: Beyond NCERT
Meaning
A monetary union (currency union) is an arrangement where member countries use a common currency and follow a single monetary policy. Interest rates and money supply are then set by one central authority for all members. Trade gets cheaper because exchange-rate risk and currency conversion costs disappear. The cost is that each member loses its own monetary policy and exchange rate as tools.
Example
The Eurozone (1999): its member countries use the euro, and one central bank sets monetary policy for all of them.
Don't confuse with
- Economic union: members harmonise their economic policies but may still keep their own currencies.
Related concepts
- Stages of economic integration
- Preferential trade agreement
- Free trade agreement
- Customs union
- Common market
- Economic union
- Trading bloc
- Regional economic groupings
- Regionalism
- Open regionalism