I’m travelling through Central Europe, visiting the capitals of Austria, Hungary and Czech Republic. Except for the cold weather and short days (which South Africans like me aren’t used to), Vienna, Budapest and Prague are fairytale winter destinations with magical Christmas markets that sell everything from sauerkraut, Christmas decorations, and home-made gluhwein, to kitchen utensils, leather, glass and iron goods, and anything that would help tourists fight the cold.
But the zealous Christmas shopper would also find that each of these countries still have their own currency. Austria uses euros, Hungary forints, and crowns are used in the Czech Republic, which leaves visitors with a conundrum: how much cash do I need? While credit cards are ubiquitous, they are of little use for buying metro tickets or shopping at Christmas markets. So on arrival, visitors must guess their expected expenditures for the length of their stay. (My suspicion is that they tend to underestimate the amount they need especially before having seen the Christmas markets.) Or they can incur the (often high) bank fees and time costs of visiting the ATM more regularly, but then they have to incur the (often exorbitant) bank fees and other opportunity costs, like searching for an ATM. And because these currencies are valued quite differently, transactions take time and effort: converting from forint to South African rand requires one to divide by 25. Try 4600, the price of a quality Budapest steak. Such costs reduce the frequency of transactions (and probably its size, too).
With the growing clamour for separate European currencies, we forget the benefits of a single currency for trade and transacting. I realise there are disadvantages too: the loss of monetary policy may dwarf any benefits, especially where countries are at very different stages of development, and the psychological costs of having to give up the national currency (which may require more political capital than abandoning the national monetary policy committee). But the trade gains are large, as a famous paper by Rose (2000) has demonstrated. (Also the tourism gains, see Santana-Gallego et al. (2010). And even in disparate countries like those of Southern Africa, a single currency (the Afro!) could realise large trade and tourism gains, as Maria Santana-Gallego and I calculated.
Low transaction costs remain the bedrock of trade, and trade remains essential for growth. A single currency can significantly reduce transaction costs across borders. And it would make my Christmas shopping in Central Europe so much easier.