A History of Modern European Monetary Unions as Territories, Regions, and Institutions

Abstract

Managing multiple currencies, changing money, keeping track of exchange rates, and understanding the ins and out of different bills and coins is a huge burden! While it seems quite rational to combine currencies, it is difficult to do so. Monetary unions involve a trade-off between the expansion of markets and the loss of monetary adjustment as a policy tool. While economic theory suggests that “optimum currency areas,” that is, economic areas with roughly the same levels of wages and economic output, should share currencies, such areas virtually never exist, even within nations that already share currencies. In practice, then, sociological explanations, pointing to the importance of cultural, political, and social institutions for monetary unions, are often more useful than economic ones. These economic and social institutions together create monetary regions. In this chapter, we show how the history of multinational European monetary unions (the Latin Monetary Union, the German Monetary Union, the Scandinavian Monetary Union, the Austro-Hungarian Monetary Union, and the European Monetary Union) illustrates interplay among economic, cultural, political, and social institutions.