ABSTRACT
The problem of international monetary integration can be approached from two different directions. On the one hand, it can be viewed from the standpoint of the adjustment process – i.e. by posing the question of the influence of international monetary flows on the economies of the countries concerned. If a universal currency existed, adjustment would have to take place by price movements within states. If price rigidities exist, it will take place through changes in real output and employment. This suggests that the domain of monetary integration should be an area in which factor mobility is great enough to guarantee painless adjustment. 1 On the other hand, an argument for monetary unification can be based on the cost of exchanging different currencies. In earlier times, thinkers were primarily concerned with the cost of exchanging currencies rather than with the problem of adjustment (except for one discussion at the time of the Latin Union). To understand the arguments on which early views on monetary integration were based, it will be useful to sketch the functioning of the monetary system in those days.
