Tantamount to the adoption of full economic union would be the adoption of a common currency and monetary policy, otherwise known as monetary union. The criteria that should be applied in deciding whether a group of countries should form a monetary union have received some attention from economists, and for good reason, since it is clear that political boundaries do not necessarily define an "optimum currency area." If they did, then Monaco should have (and could clearly benefit from) a separate currency which would then float against the French franc.
Once alternatives are allowed in the determination of areas to be served by a common currency, a number of different criteria can be applied, including the degree of factor mobility and the size and structure of economies. This section will concentrate on the latter, or more explicitly, the degree of openness of an economy ( McKinnon 1979). Openness for an economy may be defined in terms of total production accounted for by tradeable and nontradeable goods and services. A tradeable good is one that does or could enter into international trade, and includes importables (goods that are both produced domestically and imported) and exportables (goods that are produced at home and, in part, exported). Nontradeables (including purely domestic services and goods with high transportation costs) do not enter into trade, and, as opposed to tradeables, their domestic selling prices are determined independently of world market prices. An "open" economy, therefore, is composed of a large
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Publication information: Book title: The Economic Principles of European Integration. Contributors: Stephen Frank Overturf - Author. Publisher: Praeger. Place of publication: New York. Publication year: 1986. Page number: 46.