Monetary Unions of Small Currencies and a Dominating Member: What Policies Work Best for Benefiting from CMA?

This is the authors' abstract. We don't add key points for this paper.

Successfully developing economies are, over the long term, usually characterized by a credible currency regime underpinning a stable financial system facilitating low-cost transactions, encouraging savings, and facilitating financing viable investment projects (Demirguc-Kunt and Levine 2008). An independent and effective central bank (CB), efficient supervision and regulatory capacity, and a complementary sustainable fiscal policy are necessary ingredients for the monetary system to perform its role. Although all this is a valid goal at all levels of development, sound macroeconomic framework conditions are particularly vital for small developing countries. Not only are they necessary for achieving macroeconomic stability, but they also support complementary, business-friendly, and rule-of-law–oriented institution building.