Currency union - Financial definition
Concise definition of the term currency union
A currency union is an agreement between two or more countries to share a common currency or to peg their currencies to a shared standard. This arrangement aims to facilitate economic stability and integration among member states.
Comprehensive definition of the term currency union
In a currency union, member countries adopt a single currency or closely link their currencies to maintain fixed exchange rates among them, promoting trade and financial stability. The Eurozone is a prime example, where 19 European Union countries use the euro, managed by the European Central Bank. Currency unions reduce transaction costs and exchange rate volatility but require member countries to coordinate their fiscal and monetary policies closely. Other examples include the Eastern Caribbean Currency Union and the West African Economic and Monetary Union, each designed to foster economic cooperation and integration within their respective regions.