Optimum currency area

In economics, an optimum currency area (OCA), also known as an optimal currency region (OCR), is a geographical region in which it would maximize economic efficiency to have the entire region share a single currency. It describes the optimal characteristics for the merger of currencies or the creation of a new currency. The theory is used often to argue whether or not a certain region is ready to become a monetary union, one of the final stages in economic integration.An optimal currency area may often be larger than a country. For instance, part of the rationale behind the creation of the euro is that the individual countries of Europe do not each form an optimal currency area, but that Europe as a whole does form an optimal currency area.In theory, an optimal currency area could also be smaller than a country. Some economists have argued that the United States, for example, really consists of two optimal currency areas and that the United States should have two currencies, one for the western half and one for the eastern half.The theory of the optimal currency area was pioneered by economist Robert Mundell.Credit often goes to Mundell as the originator of the idea, but others point to earlier work done in the area by Abba Lerner