When a nation can finance its investments via foreign-currency denominated debt or domestic-currency claims, what is the optimal capital structure of the nation? Building on the functions of fiat money as both medium of exchange, and store of value like corporate equity, our model connects...

We propose a new theory of Optimum Currency Areas (OCAs) based on monetary sovereignty. We consider two economically integrated countries with separate currencies and monetary policies, but with exchange rate underreaction. We show that the two countries are then engaged in a strategic...