ABSTRACT
This study asked whether changes in exchange rate regimes can be explained and predicted. To answer this question political economy theory has been used because the normative theory is inadequate for this task. Many of the criteria developed there are not fulfilled by countries which form a currency area, and most of the existing currency areas in the form of nation states are not optimum currency areas as defined by that theory. Where some of those criteria are fulfilled, there still is the problem that the theoretical foundation is not convincing. The assumption of welfare-maximizing governments is just too far away from reality. Thus, theories based on that assumption are necessarily incomplete and lead to wrong predictions.
