Here’s a random paragraph from Paul Krugman’s opus on the Euro:
I think of this as the Iceland-Brooklyn issue. Iceland, with only 320,000 people, has its own currency — and that fact has given it valuable room for maneuver. So why isn’t Brooklyn, with roughly eight times Iceland’s population, an even better candidate for an independent currency? The answer is that Brooklyn, located as it is in the middle of metro New York rather than in the middle of the Atlantic, has an economy deeply enmeshed with those of neighboring boroughs. And Brooklyn residents would pay a large price if they had to change currencies every time they did business in Manhattan or Queens.
I guess I wonder how inconvenient this would really be in 2010 as opposed to 1970. Individuals wouldn’t, after all, really need to “change currencies” every time they went to Manhattan. You could buy things with your credit or debit card, and if you only had Brooklyn Bucks in your pocket, American dollars are only an ATM visit away. I think the real issue here isn’t so much that it would be too inconvenient as that it wouldn’t be inconvenient enough — getting US dollars and dollar-denominated financial assets would be so simple that US dollars would circulate widely in Brooklyn and Brooklyn Bucks would wind up being marginalized.
That’s a long-winded way of saying that I think modern information technology has tended to erode the practical benefits of large currency areas and that the more “cashless” we get the more this will be the case.