European Commission, rue de la Loi 200, 1049 Brussels. E-mail: Heliodoro.Temprano@cec.eu.int

¹Paper presented at the 8th Dubrovnik Conference on 'Monetary Policy and Currency Substitution' organised by the Croatian National Bank, Cavtat, 27–29 June 2002. The views expressed are the author's only and should not be attributed to the European Commission.

Abstract

This paper assesses the advisability of regional monetary integration in Latin America by looking at the experience with EMU, and by applying the theory of optimum currency areas (OCA) and other criteria proposed by the more recent literature. The analysis based on the OCA criteria suggests that, with the possible exception of NAFTA, none of the regions examined should engage in monetary integration. The traditional OCA theory does not take into account, however, some relevant aspects such as the degree of de facto dollarisation, the existence of credibility problems and the endogeneity of some of its criteria. After extending the analysis to these factors, the picture changes somewhat, particularly regarding the advisability of dollar-based monetary integration in Central America.