Monetary Union in Iceland

This paper by Professor Willem Buiter considers the pros and cons for Iceland adopting the euro aslegal tender unilaterally i.e. euroisation.

Pros1) Savings in microeconomic transactions costs are seen a positive for euroisation as for bilateral adoption.

Cons1) Loss of lender of last resort facility is seen as the most powerful argument against unilateral euroisation 2) Mundell's Optimal Currency Area theory which focuses on the macro benefits says Iceland would be unwise to euroise3) Iceland

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