This paper analyses the costs and benefits of European monetary unification. The benefits take the form of the reduction in exchange risk, equalization of interest rates, decline in relative price variability and general increase in economic efficiency likely to accompany unification. The costs include loss of national autonomy over monetary and fiscal policies. Historical evidence and the experience of the US currency and customs union are used as sources of evidence on both the benefits and costs. Conditions are isolated under which the sacrifice of monetary and fiscal autonomy is likely to be significant. Institutional innovations such as fiscal federalism within the EC and expanded swap facilities within the EMS are proposed for dealing with the strains that are likely to arise in Stage 2 of the Delors Plan.
