OPTIMAL CURRENCY AREA

The geographic area in which a single currency would create the greatest economic benefit. While traditionally each country has maintained its own separate currency, work by Robert Mundell in the 1960s theorizes that this may not be the most efficient economic arrangement. In particular, countries which share strong economic ties may benefit from a common currency. This allows for closer integration of capital markets and facilitates trade. However, a common currency results in a loss of each country's ability to direct fiscal and monetary policy interventions to stabilize their economies.

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