Surprisingly, history demonstrates that a monetary union is not
necessarily predicated on the existence of a single currency. A
monetary union could incorporate "several currencies, fully and
permanently convertible into one another at irrevocably fixed exchange
rates". This would be like having a single currency with various
denominations, each printed by another member of the Union.
What really matters are the economic inter-relationships and power
plays among union members and between the union and other currency
zones and currencies (as expressed through the exchange rate).
Usually the single currency of the Union is convertible at given
(though floating) exchange rates subject to a uniform exchange rate
policy. This applies to all the territory of the single currency. It is
intended to prevent arbitrage (buying the single currency in one place
and selling it in another). Rampant arbitrage - ask anyone in Asia -
often leads to the need to impose exchange controls, thus eliminating
convertibility and inducing panic.
Monetary unions in the past failed because they allowed variable
exchange rates, (often depending on where - in which part of the
monetary union - the conversion took place).
A uniform exchange rate policy is only one of the concessions members
of a monetary union must make.
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