How to Abandon the Common Currency in Exchange for a New National Currency

Abstract

The question how to leave a currency union has become an important economic issue during last few years. Asymmetric shocks, low growth and increasing federalism have left several countries of the Eurozone more open to considering whether the economic and political costs associated with euro membership have become too high. Having an individual currency can produce benefits to a country compared to a common currency of a monetary union, particularly if the single monetary policy proves unsuitable for the macroeconomic development of the country in question. However, uncertainty relating to the costs of an exit can discourage political leaders from taking decisive steps towards an exit. This article provides thoughts on how an exit from a modern currency union can be managed. We will show that the costs related to the exit can be controlled, but also that the process includes many uncertainties that the exiting country needs to be prepared for since they cannot be reduced.