from IADB:
A Euro for Latin America?
A monetary union might be more viable at a subregional level for Latin America, according to a recent study.
Is a Latin American common currency on its way? A study by economists Mauricio de la Cuba and Diego Winkelried suggests that it might be more viable at a subregional level since some countries, particularly in the Andean Community, have similar economic cycles and relative price stability.
The study also reports a growing correlation in variable interest rates between countries in the region?a key condition for a successful monetary union. Interest rate correlation means countries face similar economic impacts and improves chances for a common currency.
The study, entitled Macroeconomic Coordination and Monetary Cooperation: Costs, Benefits and Applicability in Regional Integration Agreements, was awarded first prize in a research competition sponsored by the IDB?s Institute for the Integration of Latin America and the Caribbean (INTAL).
De la Cuba and Winkelried find that the number of significant correlations among countries increases from 29 to 36 percent if monetary policy is not taken into account in the study. But the opposite occurs when fiscal policy is excluded. This indicates current fiscal policies are better lined up than monetary ones. The study covered 1980-2002 and included Bolivia, Brazil, Chile, Colombia, Ecuador, Peru, Uruguay, Venezuela and Mexico.
Could the results justify an eventual monetary union in the region? If the 29 percent of significant correlations in the region is weighed against the 67 percent of cases found in Europe, the answer is no. But a monetary union might still be considered for the future. The study indicates greater possibilities within the Andean Community, where the economic cycles of Ecuador, Colombia and Venezuela have greater correlations if their monetary policies are left out.
The study?s findings could serve as a starting point for Latin America and the Caribbean to follow the European Union, where adoption of the Euro has allayed concerns over currency conversions that delay trade and financial flows.
A Euro for Latin America?
A monetary union might be more viable at a subregional level for Latin America, according to a recent study.
Is a Latin American common currency on its way? A study by economists Mauricio de la Cuba and Diego Winkelried suggests that it might be more viable at a subregional level since some countries, particularly in the Andean Community, have similar economic cycles and relative price stability.
The study also reports a growing correlation in variable interest rates between countries in the region?a key condition for a successful monetary union. Interest rate correlation means countries face similar economic impacts and improves chances for a common currency.
The study, entitled Macroeconomic Coordination and Monetary Cooperation: Costs, Benefits and Applicability in Regional Integration Agreements, was awarded first prize in a research competition sponsored by the IDB?s Institute for the Integration of Latin America and the Caribbean (INTAL).
De la Cuba and Winkelried find that the number of significant correlations among countries increases from 29 to 36 percent if monetary policy is not taken into account in the study. But the opposite occurs when fiscal policy is excluded. This indicates current fiscal policies are better lined up than monetary ones. The study covered 1980-2002 and included Bolivia, Brazil, Chile, Colombia, Ecuador, Peru, Uruguay, Venezuela and Mexico.
Could the results justify an eventual monetary union in the region? If the 29 percent of significant correlations in the region is weighed against the 67 percent of cases found in Europe, the answer is no. But a monetary union might still be considered for the future. The study indicates greater possibilities within the Andean Community, where the economic cycles of Ecuador, Colombia and Venezuela have greater correlations if their monetary policies are left out.
The study?s findings could serve as a starting point for Latin America and the Caribbean to follow the European Union, where adoption of the Euro has allayed concerns over currency conversions that delay trade and financial flows.