DP3391 Electonic Money and the Optimal Size of Monetary Unions

Author(s): Cláudia Costa Storti , Paul De Grauwe

Publication Date: May 2002

Keyword(s):

JEL(s): E42 , F33

Programme Areas: International Macroeconomics

Link to this Page: www.cepr.org/pubs/dps/DP3391.asp

In this Paper we analyse whether the emergence of electronic money is likely to affect the optimal size of monetary unions. We distinguish between two possible future scenarios. In one scenario, electronic money supplants the existing publicly supported monetary networks (including the national payments systems). This scenario is likely to lead to larger monetary areas. It is also likely to lead to monetary instability. In a second scenario, electronic payments systems free ride on the existing national payments systems, which remain firmly in place. We argue that in this case also, the size of unified monetary areas is likely to increase.