The New Palgrave Dictionary of Economics

2018 Edition
| Editors: Macmillan Publishers Ltd

Optimum Currency Areas

  • Masahiro Kawai
Reference work entry


An optimum currency area refers to the ‘optimum’ geographical domain having as a general means of payments either a single common currency or several currencies whose exchange values are immutably pegged to one another with unlimited convertibility for both current and capital transactions, but whose exchange rates fluctuate in unison against the rest of the world. ‘Optimum’ is defined in terms of the macroeconomic goal of maintaining internal and external balance. Internal balance is achieved at the optimal tradeoff point between inflation and unemployment (if such a tradeoff really exists), and external balance involves both intra-area and inter-area balance of payments equilibrium.

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Copyright information

© Macmillan Publishers Ltd. 2018

Authors and Affiliations

  • Masahiro Kawai
    • 1
  1. 1.