THE NOMINAL AND REAL CONVERGENCE:A REAL PROBLEM FOR A SINGLE CURRENCY AREA

The introduction of the Euro currency, which replaced a number of local European currencies, is one of the most interesting monetary experiments. This project was presented to have a lot of advantages for the participants to this single currency area, such as comparable prices, lower trading costs, lower risks, etc. The specific requirements which have been arbitrarily established in order to adopt the Euro were called “nominal convergence criteria”. Additionally, an undefined “real convergence” was claimed as an argument for postponing the replacement of the local currency with a regional one. This paper discusses this specific problem of economic convergence (real and nominal) as a prerequisite for being accepted as a member of a single currency area. We explain the (in)significance of such condition for the stability or optimality of this kind of monetary arrangement.