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Are Proposed African Monetary Unions Optimal Currency Areas? Real and Monetary Policy Convergence Analysis

Are Proposed African Monetary Unions Optimal Currency Areas? Real and Monetary Policy Convergence Analysis

strand, Celasun & Justiniano(2005) have used a dynamic factor analysis to examine the synchronization of output fluctuations among member countries. Their results indicate that small countries within ECOWAS experience relatively more synchronized output variations. Hence, they suggest that monetary unification among subsets of countries is preferable over wider monetary integration. Debrun et al. (2005) investigate the potential for monetary integration in the ECOWAS using a model of monetary and fiscal policy interactions. Their findings suggest that the proposed monetary union is desirable for most non-West African Economic and Monetary Union(WAEMU) countries but not for the exiting WAEMU member states. Tsangarides & Qureshi (2008) in applying hard and soft clustering algorithms to a set of variables suggested by the convergence criteria and the theory of optimal currency areas, examine the suitability of countries in the West African region to form the proposed monetary union(WAMZ). Findings reveals considerable dissimilarities in the economic characteristics of member countries. Much recently, Alagidede et al.(2011) have examined the inflation dynamics and common trends in the real domestic product in candidate countries of the embryonic WAMZ. Using fractional integration and cointegration method, they establish significant heterogeneity among the countries.

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Currency Areas: Public Debt, Inflation and Unemployment

Currency Areas: Public Debt, Inflation and Unemployment

I carry out the comparison in the evolution of the chosen variables in two countries, Mexico and the United States of America (USA)—assuming they are optimal currency areas-along with the member countries of the Euro Zone (European Monetary Union, or EMU). The main purpose is to know the divergence between public debt, average inflation −0% in the graphs—in the main cities or regions if the first two, and compare them with the evolution of those variables in the countries of the EMU. The period of 2001-2012 is chosen to be the years in which the Euro has been circulating among member countries of the Monetary Union (EMU).

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"A Sustainable EU-27 Single Currency? Political Criteria for Optimal currency Areas"

"A Sustainable EU-27 Single Currency? Political Criteria for Optimal currency Areas"

Without long-term sustainability for a Franco-German currency union is EMU doomed to disintegrate? There are a few caveats to the conclusions of this study. First, it is important to note that if EMU survives its first years and integration does not stagnate, the currency union could yet become more solid. However, this depends on the ability of the EU member states to fulfill their promise to make the internal market more competitive so as to enhance both intra-regional trade and business cycle correlation. Intra-European trade hardly developed during the 1990s relative to GDP. Disinflation on the other hand is progressing rather well among the CEECs, and membership of the Euro-zone could bring a significant decline of inflation in them, as monetary policy is delegated to the ECB. In addition, EU membership will reinvigorate the CEECs regional trade. But then again, different debt levels, the natural price-equalization process 47 and the Balassa-Samuelson effect could still maintain non-negligible post-membership inflation rate differentials. 48

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Business Cycle Synchronization and Optimum Currency Areas: The Case of the Economic Community of West African States

Business Cycle Synchronization and Optimum Currency Areas: The Case of the Economic Community of West African States

The critiques have, however, questioned the causal relationship between trade links and correlation of member countries in monetary zone. For instance, [43] logically argues that even though the correlation of business cycles may increase with the intensity of trade links, the level of asymmetric shocks between countries may not reduce. According to [44], a currency union can increase cyclical convergence only when the symmetry in shocks and institutional structures of member countries are sufficient enough. Thus, the likelihood of wide asymmetric shocks in the long run and extra costs on the monetary union cannot be avoided. Frankel and Rose’s endogeneity hypothesis generate contentions because it focuses only on trade integration and income correlation. These contentions have been moderated by incorporating aspects of endogeneity of financial integration, the endogeneity of symmetry of shocks and the endogeneity of product and labour market flexibility [45]. Also, [46] contributed in the area of endogeneity of labour market institutions, even though the endogeneity of political integration is paramount to the formation of a monetary union [47].

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A Microeconomic Foundation for Optimum Currency Areas: The Case for Perfect Capital Mobility and Immobile Labor Forces

A Microeconomic Foundation for Optimum Currency Areas: The Case for Perfect Capital Mobility and Immobile Labor Forces

When the two central banks are unified and the mone- tary coordination becomes possible, such catastrophic competition ceases. Real capital is allocated equally by abolishing the competitive and artificial high-interest pol- icy. Just enough external money is supplied to ensure the full-employment equilibrium in each country. Thus, the social welfare achieves its maximum. In other words, our twin countries under perfect capital mobility constitute an optimum currency area. It is also noteworthy that our approach is based on a rigorous dynamic microeconomic foundation, and thus, enables the economic welfare analy- sis. In this sense, we succeed in updating and extending the theory of Mundell [1] 3 .

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Asymmetric shocks on its head and lender of last resort theories of optimal currency areas

Asymmetric shocks on its head and lender of last resort theories of optimal currency areas

How would membership of a wider currency union, especially of a currency union whose currency is a global reserve currency, make a difference? It would not make any difference if the problem of the banks had been one of fundamental insolvency - if the hold-to-maturity value of the assets was insufficient to cover its obligations. But if the problem were only one of illiquidity causing a non- fundamental insolvency because the assets of the banks could be realised in the short run only at fire-sale prices, then membership of the eurozone would have permitted the banks to survive. Many of the illiquid assets of the banks could have been used as collateral at the discount window of the Eurosystem or in Eurosystem repos. Because the euro is a global reserve currency, there would have been no appreciable effect on the external value of the euro from the LLR and MMLR operations of the Eurosystem in support of the banks of any not too large member country.

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Are Proposed African Monetary Unions Optimal Currency Areas? Real, Monetary and Fiscal Policy Convergence Analysis

Are Proposed African Monetary Unions Optimal Currency Areas? Real, Monetary and Fiscal Policy Convergence Analysis

With much attention currently being focused on convergence criteria and preparedness of the aspiring member states of embryonic African Monetary zones, candidate countries of the West African Monetary Zone (WAMZ) have twice postponed the take–off for the single currency. Central bank experts in the upcoming East African Monetary Zone (EAMZ) fear that, plans for a common currency in 2012 maybe too ambitious as central banks in the five countries are given little time to prepare for the monetary union. These could be the result of the European Monetary Union (EMU) crisis that has sent a strong signal to other common currency regions on the goals of real, monetary and fiscal policy convergence. A paramount lesson of the EMU crisis is that serious disequilibria results from regional arrangements not designed to be robust to a variety of shocks (Willet, 2010; Willett & Srisorn, 2011). In designing the EMU, institutions’ almost exclusive concern was placed on mitigating crises caused by financial sectors. The official stance of the German government today appears to remain that, failure of these safeguards is the predominant cause of the crisis. A position which can be reasonably argued for Greece, although its loss of competiveness has also been a major factor.

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On a Globalized Exchange Rate Model and Currency Unions: A Note

On a Globalized Exchange Rate Model and Currency Unions: A Note

, it is expedient to recall however the dimension of international agreements or modalities regarding common currencies and unions. The evolution of arrangements that set the stage for the formation of currency unions or currency poles is not new. One of these is the Custom Union Theory which according to Bloomfield and Ethier (1977: 524) deals with the mutual reduction of barriers between countries maintaining common barriers vis-à-vis the rest of the world. They noted that this theory has pre-occupied many economists beginning with the works of Jacob Viner and James E. Meade in the 1950s. Robert Mundell in 1962 did a seminal work on currency arrangements – which gave birth to the idea of Optimum Currency Areas (OCAs). The U.S. dollar has been the dominant currency used in international monetary settlements since the abolishment of the pegged exchange rate system in 1971. Meanwhile, the euro perhaps seems to be the closest example of the creation of an optimum currency area propounded by Mundell. The euro is obviously a currency pole consequent from

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Upon completion of this Master program, researcher has gained deeper understanding of macroeconomic aspects which evidently influence the economic conditions of a country. In addition to macroeconomic factors in a country, macro factors in other countries also influence macroeconomic conditions in a country. Besides, in this modern era, international transactions has become possible, even easier. International transactions have engaged countries in both export and import activities. “Easier access to international trade and lower barriers in conducting it will increase volume and value of international trade” (Kartikaningtyas et al., 2014:1). A global currency is needed in conducting international trade, and therefore a country should make sure they convert their currency to the one accepted for trade throughout the world. The importance of exchange rates has drawn researcher’s attention to study factors affecting exchange rates in a country.

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CURRENCY DERIVATIVES – AN EXPLORATIVE STUDY

CURRENCY DERIVATIVES – AN EXPLORATIVE STUDY

ii. Speculation: one can speculate on the short term movement of the markets by using Currency Futures. For e.g. If investors expects oil prices to rise and impact India's import bill, they would buy USDINR in expectation that the INR would depreciate. Alternatively if it is believed that strong exports from the IT sector, combined with strong FII flows will translate to INR appreciation they would sell USDINR.

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The international role of the Euro

The international role of the Euro

In deciding how much of a particular international currency to hold as a store of value and whether to use that currency as an anchor currency, central banks and their governments care about three things. First, how costly is it to transact with the currency and what opportunities are there for investing it. Second, is it economically sensible to use the currency? That is, what is the expected return to holding the currency and how does holding it affect the riskiness of the central bank’s portfolio? Will it maintain a stable value and does it satisfy optimal currency area criteria? Third, are there political considerations that make the currency more or less attractive?

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Crises in Asia or crisis of globalisation?

Crises in Asia or crisis of globalisation?

Basically, anybody who wished to study the consequences of a deregulation of the financial sector including the dismantling of capital controls could have studied the experience of Australia and New Zealand in the 1980s. In a nutshell, both the Australian government as well as the New Zealand government sought to improve the efficiency of their financial sector by deregulating them and by allowing foreign competition. Capital could flow freely in and out of the country. The consequences were disastrous: Initially, money flowing into the Australian economy put upward pressure on the Australian dollar. In that situation, many private actors, permitted to do so in the deregulated environment, borrowed money abroad. Some Australian farmers, ill advised by their local bank manager, borrowed in foreign currency without

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Foreign Currency Mortgages Recast as Options on Commodity Futures

Foreign Currency Mortgages Recast as Options on Commodity Futures

This paper proposes that Eastern European borrowers reposition their mortgag- es as options on commodity futures. At time 0, they must convert domestic cur- rency into a foreign currency down payment, paid to the seller of residential property. From the first month onwards, for about 15 years, they pay a monthly mortgage payment to a foreign bank, exercising a call option to purchase a for- eign currency futures contract. Initially, the foreign currency price is low, so the borrower exercises the option, obtains the futures contract, and purchases the foreign currency at an affordable price. Upon repeated devaluation, monthly payments continue to increase, so that the call buyer will be required to purchase options at progressively higher strike prices. This disincentivizes exercise of the call option. To encourage option exercise, a source of funds is created, that meets the cost of increasing strike prices. Each mortgage payment may be split into 2 parts. One portion may be allocated to current principal and interest payments, whereby conversion from domestic currency to foreign currency, oc- curs at the spot exchange rate. The remaining payment is allocated to the pur- chase of a series of 1-year futures contracts, paid from a high-return portfolio of oil, gold and silver, which have higher returns than the high-return equities portfolio of Section 3. The returns on this high-return portfolio pay the incre- mental increase in mortgage payments, thereby shielding borrowers from de- fault.

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Currency Value

Currency Value

As outlined above, the currency value measure we put forth in this paper relies on adjustments for country-specific fundamentals, most of which are fairly common in the literature and for which data are easily available. The measurement of the quality of exports, however, deserves further discussion. We use an export quality index constructed by the IMF and described in detail by Henn, Papageorgiou, and Spatafora (2013). It is constructed based on an extension of the UN-NBER dataset covering bilateral trade at the SITC 4-digit level. The quality index of export goods is constructed bottom up from a very disaggregated level of 851 product categories. The idea is to adjust unit values for production cost differences and a selection bias coming from the relative distance between exporter and importer. At the end of this process there are about 20 million quality estimates, each covering a specific exporter-importer-product combination. These estimates are then aggregated in a final step into a country index of export quality.

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Advantages and disadvantages of demonetization: A case study of Vijayapura City, Karnataka State

Advantages and disadvantages of demonetization: A case study of Vijayapura City, Karnataka State

Demonetization is bold step of Government towards economic development of India. Demonetization policy is most discussed topic in every corner of India during eve of 2016. The main objective of demonetization is to curb black money. The process of Curbing Black Money through Demonetization has made it mandatory to all the India citizens to deposit their old currency in the banks and exchange them for a new currency.

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													Legality of the bit coins: new medium of exchange in indian market

1. Legality of the bit coins: new medium of exchange in indian market

KYC norms as provided by RBI to monitor transactions made by the customers which is not possible in Bitcoins as the transactions are anonymous in nature, for which it becomes difficult to drag it under the current laws. The Reserve Bank of India has norms related to „Know Your Customer‟ which makes it mandatory for financial services to be updated with the record of the users. This makes it difficult for the bitcoins to sustain since anonymity is one of its prime features. However, this issues is closely addressed by third party cryptocurrency renderers which monitor the activity of the users and also keep the record. Cross Border or Borderless transfer of funds being the most important aspect of crypto currencies makes bitcoin a perfect currency to be the money of the future. This brings light to the FEMA regulations since all the cross border funds transfers are regulated by it. Transactions with regard to bitcoins can only be interpreted as it is since there is no specific law providing aid to it. The interpretation of this would not hinder anything in the process of using bitcoins for trades in India. However the regulations can be further monitored internally by the Reserve Bank of India. The sale, however to a non- resident with regards to bit coins would violate the regulations of FEMA, 1999. But the taxation over bitcoins would be complicated but not difficult to regulate. The fact that there can be taxation over transfers as well as mining of bitcoins would put forward difficulty in categorisation. It is unsure whether bitcoins would be put under the head of income or capital. However, this would shoot India to global fame if it becomes part of our economy. This would also allow the users to integrate bitcoins in UPI applications since the transaction fees vested in cryptocurrencies is close to zero.

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Impact of Exchange Rate Movements on Indian Firm Performance

Impact of Exchange Rate Movements on Indian Firm Performance

An appreciation of the home currency results in a lower the home-currency price of internationally-priced inputs, so production costs fall and industry profitability rises. Similarly, a depreciation increases the home currency price of these inputs, increasing costs and decreasing profitability. Finally, exchange rate changes directly affect the value of foreign denominated assets through the translation of values from one currency to another. For example, firms with foreign investments that have current and future cash flows denominated in foreign currency and the home currency value depend on the exchange rate. In most cases, a depreciation of the home currency increases the value of industries with net foreign denominated assets, while an appreciation decreases the value of these industries.

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A Review on Fake Currency Detection Techniques

A Review on Fake Currency Detection Techniques

Automatic recognition of fake Indian currency note is important in many applications such as automated goods seller machine and automated goods tellers machine. This system is used to detect the valid Indian currency note. The system consists of eight steps including image acquisition, grey scale conversion, edge detection, feature extraction, image segmentation, comparisons of images and output [1]. Automatic machine more helpful in banks because banks faces the problem of counterfeit currency notes or destroyed notes. Therefore involving machine makes

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Commodity Currency: An Alternative Route  to Currency Union

Commodity Currency: An Alternative Route to Currency Union

Richard Cooper [16] suggested currency union among the major industrial democracies, now partially realised in the establishment of the European Central Bank and with it the European currency. Cooper more recently [17] foresaw that as international financial transactions con- tinue to grow relative to growth in trade and services, financial factors will come to dominate exchange rate determination. Flexible rates, hitherto providing a useful mechanism for absorbing trade shocks and disturbances, have themselves become a source of financial shocks; Cooper suggested that this correspondingly makes wider currency union more beneficial than exchange rate flexi- bility.

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Empirical Results for Some Monetary Areas According to Optimum Currency Area Criteria

Empirical Results for Some Monetary Areas According to Optimum Currency Area Criteria

In case of MERCOSUR we could barely fi nd a pair of countries with better values compare with euro area’s all-time average. It seems to be convenient for both Canada and Mexico to adopt a common currency with the USA. Most of indicators have improved in NAFTA, especially those between Mexico and Canada. Venezuela reaches the worst values in almost all indicators. The other countries reach better values, especially Argentina and Brazil. But we can say that the states of MERCOSUR are not appropriate candidates for creation of monetary union according to optimum currency area criteria which were approximated by OCA index in our paper.

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