The theory of Optimum Currency Areas in the light of EMU: A critical survey of the insights drawn from a decade of economic and monetary union in Europe

This paper tries to draw some lessons of the experience of ten years of EMU for the theory of Optimum Currency Areas. It examines whether, in the light of EMU, the OCA theory may be considered as a relevant framework for assessing the functioning of a monetary union as well as the costs and benefits which ensue from it for its member countries. To this aim, both the traditional approach of OCA (based on the quest for optimality criteria) and the endogeneity approach (according to which a monetary union will endogenously become an optimal currency area) are considered. It appears that the first approach may be of limited scope if we would like to use it so as to assess the role played by asymmetries in the functioning of a monetary union. Moreover, only moderate evidence is found that EMU is endogenously turning into an optimum currency area.