What Is a Currency Union?

In the past, countries have entered into currency unions to facilitate trade and strengthen their economies, and to also unify previously divided states. In the 19th century, Germany’s former customs union helped to unify the disparate states of the German Confederation with the aim of increasing trade. More states joined beginning in 1818, sparking a series of acts…

Under the European Monetary System, exchange rates can only be changed if both member countries and the European Commission agree. This unprecedented move attracted a lot of criticism. Significant problems in the foundational policies of European Monetary System became evident following the Great Recession. Certain member states—Greece, in particular, but also Ireland, Spain, Portugal, and Cyprus—experienced high national deficits that…

The history of the European currency union in its contemporary form begins with economic unification strategies pursued throughout the latter half of the 20th century. The Bretton Woods Agreement, adopted by Europe in 1944, focused on a fixed exchange rate policy to prevent the wild market speculations that caused the Great Depression.8 Other agreements reinforced European economic unity,…

A currency union is when a group of countries (or regions) use a common currency. For example, eight European nations created the European Monetary System in 1979. This system consisted of mutually fixed exchange rates between member countries. In 2002, twelve European countries agreed to a common monetary policy, thus forming the European Economic and Monetary Union.2 One reason why…