ABSTRACT
This chapter is concerned with macroeconomic management and international monetary relations. To begin with, high rates of inflation produce distortions that are likely to be more pervasive and costly for the future development of an economy than those associated with reduced reliance on the inflation tax. In an integrated financial area, the default premia that public and private borrowers have to pay will provide a signal of the market's evaluation of the underlying economic conditions. The chapter focuses on the macroeconomic policy implications of currency zones. It addresses the conduct of monetary and exchange rate policy in an emerging currency union. The chapter investigates the implications of a currency zone for the conduct of fiscal policy. For any currency union or even a quasi fixed exchange rate regime to be viable, it is essential that the participants reach a consensus on the goals of monetary policy.
