Paul Krugman reviews the debate over the euro. Anyone who’s been following his blog will already be familiar with the argument that currency integration without labor market integration or fiscal integration has a lot of problems. What I was intrigued to learn about were the surprisingly modest benefits:
What about those benefits from monetary integration? Jeff Frankel has a good piece on this: pre-euro work had suggested very large trade gains, but the actual experience has been much more modest — not nothing, but nothing like the high hopes some had for the euro.
If you read Frankel’s piece, you’ll see he doesn’t really have an explanation for it. I wonder if it’s not related to the point I made about the euro and tourism. In 1980, European monetary integration would have had huge practical benefits for international travelers. In 2010 where you can use ATM cards and credit cards just about anywhere, it’s not that big a deal. For larger scale trade the issue would be less the de-cashing of the economy as the spread of computers. In 1980, I imagine it would really have been quite burdensome for many firms to check prices at suppliers in a half dozen different countries each with their own currency. But today even the smallest firm can have a computer and a spreadsheet program—a free online one, even—and do this pretty easily.
In other words, what is and isn’t an optimal currency zone may be dependent on technology, and digitization may be setting the bar higher.