The Eurasian Economic Union: In Search for Optimality in the Post-Soviet Sphere

Sammanfattning: This paper evaluates the economic feasibility of introducing a shared currency within the Eurasian Economic Union - a regional project aimed at the economic integration of Armenia, Belarus, Kazakhstan, Kyrgyzstan and Russia. The costs and benefits of sharing legal tender are weighed by assessing the proposed currency area's chances of avoiding or mitigating asymmetric shock. This is done by applying Optimal Currency Area theory to the economic conditions of the Union and to those of each individual state. The analysis finds that it is likely that a Eurasian currency area will suffer from asymmetric shocks. The Union's elevated risk of being struck by shock comes from major dissimilarities between the countries' economies. The economic conditions of the countries in question also indicate that they are not in possession of the tools needed to adjust for asymmetric shocks, were they to happen. The paper concludes that the formation of a mutually beneficial currency union between the current members of the Eurasian Economic Union is not supported by Optimal Currency Area theory. The conclusion drawn from the analysis thus implies that these post-Soviet states should retain monetary sovereignty, as a floating currency allows them to mitigate asymmetric shocks through exchange rate adjustments.