Optimum Currency Areas

Robert Mundell

“The question Mundell posed in his article on “optimum currency areas” (1961) therefore seemed radical: when is it advantageous for a number of regions to relinquish their monetary sovereignty in favor of a common currency?”
Nobel Prize Press Release

 Fixed exchange rates within the framework of the Bretton Woods system predominated the world economy in the early1960s.

At the time, a few researchers did address the advantages and disadvantages of fixed versus floating exchange rates, even though this was regarded as rather academic subject matter. A national currency however, was considered an axiom.

In his 1961 article on optimum currency areas, Mundell radically reformulated the problem of different exchange rate systems, by posing a new and fundamental question:

Under what circumstances is it advantageous for a number of regions to relinquish their monetary sovereignty in favor of a common currency?