Optimal Currency

Optimal Currency can be defined as the single currency that can do wonders in terms of transactions and economies in a certain geographical area. As well all know that different countries of the world have their own specific currency that is completely different from the currencies of other countries in the world. However Robert Mundell in 1969 published his theory regarding the effectiveness of single currency for a specific geographical area and states that idea of having different currencies for different geographical locations is not fruitful in terms of economies and transactions. According to Mundell countries that share strong economic ties and share a vast and active trading network with each other must have a single operating currency. A single currency not only helps in facilitating trade but it also helps in integration of the capital markets of related countries.

Although there are a number of advantages of a common currency that is optimal for a certain geographic area it may have some disadvantages as well. The major disadvantage is that a country will lose its ability to create and implement its independent fiscal policies and economic interventions to stabilize their economy and trade.

A very well known example of inaugurating an optimal currency for a certain geographic region was the inauguration of Euro that is a common currency among a number of European nations. European countries has enjoyed a number of advantages of Euro however they have also faced a number of challenges such as challenge of Greek Debt Crises.

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