Monetary Union: A Common Currency and Central Bank
Definition
Monetary Union
A common market between countries who also share a common currency and a common central bank.
A monetary union reaches a higher level of integration than a common market, because members share two things:
Common currency: all members use the same money.
Common central bank: a single bank that sets monetary policy for every member.
This topic draws on ideas from subtopics 4.5 Exchange Rates and 4.6 Balance of Payments.
Example
The Eurozone is a monetary union where 20 of the 27 European Union countries use the euro (EUR) as their common currency, managed by the European Central Bank (ECB).
Active recall
What two shared institutions define a monetary union?
How does a monetary union differ from a common market?
Which currency and central bank are shared by Eurozone members?
