The Political Economy of Monetary Union (1995)

Abstract

In the last few years, while Western Europe has been preoccupied with its fitful progress toward economic and monetary union, previous monetary unions to the east have been unraveling. Wherever political unity and central control have ended in Central and Eastern Europe, monetary separation has rapidly followed. This was true in Czechoslovakia, where political division was comparatively friendly and peaceful, as well as in Yugoslavia, where it has been hostile. Despite a Czech-Slovak agreement, on 29 October 1992, to use a common currency for an unspecified period after formal separation, Slovaks rushed to get rid of Czech banknotes almost as soon as the break occurred on 1 January 1993, and the Czech and Slovak central banks began overprinting bank notes in preparation for the new separate currencies (Reuters, 11 January 1993). In Yugoslavia, not only were the Slovenian tolar and Croatian dinar established separately from the Yugoslav (Serbian) dinar, but separate new dinars were planned for Muslim-held parts of Bosnia-Herzegovina and the self-proclaimed ‘Serbian Republic of Bosnia-Herzegovina’. Thus, Sarajevo radio announced on 15 August 1992, that the old Yugoslav dinar would be scrapped in favour of a new Bosnian dinar, pegged to the German mark at 350 to 1 (Reuters, 15 August 1992).

In P. Kenen (ed.), Understanding Interdependence: The Macroeconomics of the Open Economy (Princeton University Press, 1995).

My thanks are due to those participating in discussions of this paper at Columbia, Liverpool, and Princeton Universities; to Michael Artis, Andrew Crockett, Phillipa Gaster, Dieter Guffens, Rosa Lastra, Jacques Melitz, Robert Nobay, Lionel Price, and Christien Schluter for help and suggestions; and to Benjamin Cohen, Alberto Giovannini, and Andrew Hughes Hallett for acting not only as discussants, but also as friendly advisers. They are not, however, to be chided for my opinions and errors.