A currency union (also known as monetary union) is an intergovernmental agreement that involves two or more states sharing the same currency. These states may not ...
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necessarily have any further integration (such as an economic and monetary union, which would have, in addition, a customs union and a single market).
There are three types of currency unions:
Informal – unilateral adoption of a foreign currency.Formal – adoption of foreign currency by virtue of bilateral or multilateral agreement with the monetary authority, sometimes supplemented by issue of local currency in currency peg regime.Formal with common policy – establishment by multiple countries of a common monetary policy and monetary authority for their common currency.The theory of the optimal currency area addresses the question of how to determine what geographical regions should share a currency in order to maximize economic efficiency.
