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The Economics of Common Currencies (Collected Works of Harry Johnson) by Alexander K. Swoboda, Harry G. Johnson

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Chapter 11

JOINT BALANCE: CAPITAL MOBILITY AND THE MONETARY SYSTEM OF A CURRENCY AREA*

SVEN W. ARNDT

University of California, Santa Cruz

When two countries enter into a monetary union, the consequent extension of their mutual dependence impinges upon the nature and ordering of their economic goals and alters both qualitatively and quantitatively the policy instruments in their individual and joint possessions. The adoption of a uniform currency effectively removes the monetary instrument from the individual country’s arsenal, and the freedom to employ fiscal controls is restricted because the transfer of monetary powers to the community constrains the available means of financing government outlays. The latter constraints operate even where ...

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