SOAS Research Online

A Free Database of the Latest Research by SOAS Academics and PhD Students

[skip to content]

Toporowski, Jan (2013) 'International credit, financial integration and the Euro.' Cambridge Journal of Economics, 37 (3). pp. 571-584.

Full text not available from this repository.


Prospects for the European Monetary Union are inevitably affected by the theoretical presuppositions of the observer. The most common approach, the theory of optimal currency areas, postulates that traded goods are produced by labour and the exchange rate between ‘national’ currencies is the ratio of commodity wages, expressed in monetary units, in different countries. In this analysis the exchange rate and wages are substitutes for obtaining international ‘competitiveness’. Such a view is the basis for current reflections about the future of the euro and the reduction of its difficulties to relative wages rates in different countries of the eurozone. The theory has two important limitations. First, it takes no account of the import intensity of exports, which would require wage adjustments to reinforce exchange rate adjustments, so that wages and exchange rates are necessarily complementary parameters, rather than being substitutes for each other. Hence, exit from the eurozone as a means of closing trade deficits would require additional austerity. Even more importantly, it is a commodity money theory, in which imbalances are accommodated by accumulations of specie or fiat money. However, in a credit economy, banking systems absorb trade imbalances into their balance sheets. Moreover, financial integration means that banking systems throughout Europe are vulnerable to balance sheet risks from exchange rate depreciation in any country in Europe.

Item Type: Journal Article
SOAS Departments & Centres: Departments and Subunits > Department of Economics
Legacy Departments > Faculty of Law and Social Sciences > Department of Economics
ISSN: 0309166X
DOI (Digital Object Identifier):
Date Deposited: 13 Sep 2015 17:27

Altmetric Data


Download activity - last 12 monthsShow export options
Downloads since deposit
6 month trend
6 month trend
Accesses by country - last 12 monthsShow export options
Accesses by referrer - last 12 monthsShow export options

Repository staff only

Edit Item Edit Item