Concept of Integrative Currency Area and Application to the Central Europe

Abstract

Euro zone is created along with theory of optimal currency area. This theory is not the only solution that indicates how to integrate countries in the common currency area. The euro area requires that labor productivity is at a similar level. Central European countries, on the other hand, have much lower labor productivity than Western European countries. The question arises about the possibility of creating a currency zone for countries with different levels of productivity. In this paper, it is indicated that there is a positive answer in this matter. However, this requires a rethinking and definition of the basic arrangement of the economic concepts. The paper indicates a method of translating economic values into value of the one currency. The main measurer limiting freedom is the labor productivity index, which cannot decrease what would cause inflation. The lower labor productivity means only that employees have the lower earnings.