Monetary Union, Banks and Financial Integration

Breton, Régis; Rojas Breu, Mariana; Bignon, Vincent

Breton, Régis; Rojas Breu, Mariana; Bignon, Vincent (2013-02), Monetary Union, Banks and Financial Integration, 62nd annual meeting of the AFSE, 2013-06, Marseille, France

Type

Communication / Conférence

Date

2013-02

Conference title

62nd annual meeting of the AFSE

Conference date

2013-06

Conference city

Marseille

Conference country

France

Metadata

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Author(s)

Breton, Régis

Rojas Breu, Mariana
Laboratoire d'Economie de Dauphine [LEDa]
Bignon, Vincent

Abstract (EN)

This paper analyzes a two-country model of money and banks to examine the conditions under which the creation of a monetary union between two countries is optimal. Is is shown that if agents resort to banks to adjust their monetary holdings through borrowing and if nobody can force them to repay their debts, it may be optimal for both countries to set up two different currencies, along with strictly positive conversion costs. A necessary condition for this is that credit market integration is limited. This arises even though both countries are perfectly identical.

Subjects / Keywords

Monetary union; credit; default; limited commitment

JEL

E42 - Monetary Systems; Standards; Regimes; Government and the Monetary System; Payment Systems
G21 - Banks; Depository Institutions; Micro Finance Institutions; Mortgages