According to the theory of optimum currency areas,

Question

Quizplus · Accepted Answer

The theory of optimum currency areas suggests that the degree of factor mobility (capital and labor) within a common currency zone is a relevant criterion for designing and identifying such a zone. In other words, a common currency area should ideally have high factor mobility so that labor and capital can move freely to areas where they can be most productive. This can help to minimize the economic costs and imbalances that may arise from having a single currency. Exchange rates and worker preferences are not the primary factors for designing a common currency area according to this theory.

According to the Theory of Optimum Currency Areas