Europe as an Optimal Currency Area

The term optimum currency area refers to the economic unit that comprises of regions affected symmetrically by the disturbance. The labour and other factors of production are also supposed to move quite freely between the regions within that economic unit. Due to symmetrical disturbance and free mobility of production factors the exchange rates remain stable and promote the use of common currency (Krugman and Obsrfeld, p98). It implies that any economic unit could be regard as an optimum currency area if the labour and other factors of production move freely within its region and there is either use of common currency between the regions or the exchange rate remains minimal or unchanged for long periods of time (McKinnon, p173).