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Acurrency union (also known asmonetary union) is an intergovernmentalagreement that involves two or morestates sharing the samecurrency. These states may not necessarily have anyfurther integration (such as aneconomic and monetary union, which would have, in addition, acustoms union and asingle market).
There are three types of currency unions:
The theory of theoptimal currency area addresses the question of how to determine what geographical regions should share a currency in order to maximize economic efficiency.[2]
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Implementing a new currency in a country is always a controversial topic because it has both many advantages and disadvantages. New currency has different impacts on businesses and individuals, which creates more points of view on the usefulness of currency unions. As a consequence, governmental institutions often struggle when they try to implement a new currency, for example by entering a currency union.
Convergence in terms ofmacroeconomics means that countries have a similar economic behaviour (similarinflation rates andeconomic growth).It is easier to form a currency union for countries with more convergence as these countries have the same or at least very similar goals. TheEuropean Monetary Union (EMU) is a contemporary model for forming currency unions. Membership in the EMU requires that countries follow a strictly defined set of criteria (the member states are required to have a specific rate of inflation,government deficit,government debt, long-terminterest rates andexchange rate). Many other unions have adopted the view that convergence is necessary, so they now follow similar rules to aim the same direction.
Divergence is the exact opposite of convergence. Countries with different goals are very difficult to integrate in a single currency union. Their economic behaviour is completely different, which may lead to disagreements. Divergence is therefore not optimal for forming a currency union.[6]
The first currency unions were established in the 19th century. The GermanZollverein came into existence in 1834, and by 1866, it included most of the German states. The fragmented states of the German Confederation agreed on common policies to increase trade and political unity.
TheLatin Monetary Union, comprising France, Belgium, Italy, Switzerland, and Greece, existed between 1865 and 1927, with coinage made ofgold andsilver. Coins of each country were legal tender and freely interchangeable across the area. The union's success made other states join informally.
TheScandinavian Monetary Union, comprising Sweden, Denmark, and Norway, existed between 1873 and 1905 and used a currency based on gold. The system was dissolved by Sweden in 1924.[7]
A currency union among the British colonies and protectorates in Southeast Asia, namely the Federation of Malaya, North Borneo, Sarawak, Singapore and Brunei was established in 1952. The Malaya and British Borneo dollar, the common currency for circulation was issued by theBoard of Commissioners of Currency, Malaya and British Borneo from 1953 until 1967. Following the cessation of the common currency arrangement, Malaysia (the combination of Federation of Malaya, North Borneo, Sarawak), Singapore and Brunei began issuing their own currencies. Contemporarily, a currency reunion of these countries might still be feasible based on the findings of economic convergence.[8][9]
Note: Everycustoms and monetary union andeconomic and monetary union also has a currency union.
Zimbabwe is theoretically in a currency union with four blocs as the South African rand,Botswana pula, British pound and US dollar freely circulate. The US Dollar was, until 2016, official tender.[17]
Additionally, theautonomous anddependent territories, such as some of theEU member state special territories, are sometimes treated as separatecustoms territory from their mainland state or have varying arrangements of formal or de factocustoms union,common market and currency union (or combinations thereof) with the mainland and in regards to third countries through thetrade pacts signed by the mainland state.[18]
The European currency union is a part of theEconomic and Monetary Union of the European Union (EMU). EMU was formed during the second half of the 20th century after historic agreements, such asTreaty of Paris (1951),Maastricht Treaty (1992). In 2002, theeuro, a single European currency, was adopted by 12 member states. Currently, theEurozone has 20 member states. The other members of the European Union are required to adopt the euro as their currency (except for Denmark, which has been given the right to opt out), but there has not been a specific date set. The main independent institution responsible for stability of the euro is theEuropean Central Bank (ECB). TheEurosystem groups together the ECB and the national central banks (NCBs) of the Member States whose currency is the euro. TheEuropean System of Central Banks (ESCB) is made up of the ECB and the national central banks of all Member States of theEuropean Union (EU), regardless of whether or not they have adopted the euro. The Governing Board consists of the Executive Committee of the ECB and the governors of individual national banks, and determines the monetary policy, as well as short-term monetary objectives, key interest rates and the extent of monetary reserves.[19]
| Community | Currency | Region | Target date | Notes |
|---|---|---|---|---|
 East African Community | East African shilling | Africa | 2012 (not met), 2015 (not met), 2024 (not met),[20] 2031[21] | |
| West African Monetary Zone | Eco | Africa | 2027 | InsideEconomic Community of West African States, planned to eventually merge withWest African franc |
| ASEAN+3 | Asian Monetary Unit[citation needed] | Asia | ? | afree trade agreements matrix partially established |
 Cooperation Council for the Arab States of the Gulf | Khaleeji | Arabian Peninsula | ? | Oman and theUnited Arab Emirates do not intend to adopt the currency at first but will do at a later date. |
 African Economic Community | Afro or Afriq | Africa | 2028[22] | Planned for 2028 or later |
| Brazil, Argentina and possibly other countries | Sur | Latin America | ? | As Financial Times reports, Brazil and Argentina will announce in January 2023 that they are starting preparatory work on a common currency "Sur" (South). The initiative would later be extended to invite other Latin American nations.[23] |
Bahrain and
Abu Dhabi using theBahraini dinar
Bahrain,
Kuwait,
Oman,
Qatar and the
Trucial States, using theGulf rupee from 1959 until 1966
Aden,
South Arabia,Bahrain,
Kenya,Kuwait,Oman,Qatar,
British Somaliland, theTrucial States,
Uganda,
Zanzibar and
British India (later independent
India) using theIndian rupee until 1974
Belgium and the
Grand-Duchy ofLuxemburg (Belgium-Luxembourg Economic Union) using theBelgian/Luxembourgish franc from 1921 to the EuroBritish India and the
Straits Settlements (1837–1867) using theIndian rupee
Czech Republic and
Slovakia (briefly from January 1, 1993 to February 8, 1993) using theCzechoslovak koruna
Ethiopia and
Eritrea using theEthiopian birr
France,
Monaco, and
Andorra using theFrench franc
Austria-Hungary and
Liechtenstein using theAustro-Hungarian krone
Jamaica,
Barbados,
Trinidad and Tobago and
British Guiana using theBritish West Indies dollarBarbados,Trinidad and Tobago andBritish Guiana using theEastern Caribbean dollar
Italy,
Vatican City, and
San Marino using theItalian lira
Jamaica and the
Cayman Islands using theJamaican pound and laterJamaican dollarKenya,Uganda, andZanzibar using theEast African rupeeKenya,Uganda, andZanzibar (and later
Tanganyika) using theEast African florin
Kenya,Tanganyika and
Zanzibar (later merged as
Tanzania),
Uganda,South Arabia,British Somaliland and
Italian Somaliland using theEast African shilling
France,Belgium,
Italy and
Switzerland, and later involving
Greece,[24]
Romania,
Spain and other countries.
Liberia and the
United States using theUnited States dollar
Mauritius and
Seychelles using theMauritian rupee
Nigeria,
theGambia,
Sierra Leone,
the Gold Coast andLiberia using theBritish West African pound
Prussia and the North German states (1838–1857) using theNorth German thaler
Russia and the
former Soviet republics (1991–1993) using theSoviet ruble
Armenia and
Artsakh using theArmenian dram
Qatar and all the emirates of the
United Arab Emirates, exceptAbu Dhabi using theQatari and Dubai riyal
Saudi Arabia andQatar using theSaudi riyal
Western Samoa and
New Zealand using theNew Zealand pound
Denmark,
Norway and
Sweden[24]
Solomon Islands,
Papua New Guinea and
Australia using theAustralian dollarAustralia,Papua,
New Guinea,
Nauru,
theSolomon Islands, and
theGilbert and Ellice Islands using theAustralian pound
Bavaria,
Baden,
Württemberg,
Frankfurt, and
Hohenzollern using theSouth German guilder
Spain andAndorra using theSpanish peseta
Trinidad and Tobago and
Grenada using theTrinidad and Tobago dollar
Brunei,
Malaysia, and
Singapore (1953–1967) using theMalaya and British Borneo dollar
Cambodia,
Laos,Guangzhouwan,
Annam,
Tonkin, and
Cochinchina (later
Vietnam) between 1885 and 1952 using theFrench Indochinese piastre
South Africa,South West Africa, and
Bechuanaland (later independent
Botswana) using theSouth African rand
Egypt,
Anglo-Egyptian Sudan, and
Mandatory Palestine (until 1926) using theEgyptian pound
West Germany and
East Germany between 1 July 1990 and 3 October 1990, as part of a temporary, so-called "Monetary, Economic and Social Union" prior toGerman reunification.
Republic of Ireland and theUnited Kingdom, between 1928 and 1979. TheIrish Pound was held at exactly the same value as Sterling for this period, although it was not accepted for payments in the UK.
Empire of Japan, the
Korean Empire,
Manchukuo,
Mengjiang, the
Wang Jingwei regime, and Japanese-occupied Southeast Asia prior to and during World War II.United Kingdom andNorway using thepound sterling during the late 1940s and early 1950sFrance persuaded Belgium, Italy, Switzerland and Greece
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