Farewell then, the Lewes Pound - You were not an optimal currency area

We’re surprised it was still going:

Farewell to the Lewes Pound, the UK’s last local currency

Notes that symbolised the east Sussex town’s independent spirit when they were launched in 2008 fell victim to the unstoppable rise of cards and digital payments

No, it’s not digitisation. It’s that the idea itself had no merit. Currency has a function - to facilitate exchange. How far a currency should extend is therefore - at one boundary - determined by how wide the area of exchange should be. Lewes is too small an area - there is no possibility at all of Lewes feeding itself until the evening without interacting with areas outside Lewes. Let alone doing anything more interesting, like remaining a civilisation or anything.

As Robert Mundell showed there’s also a limit at the other boundary, where an area can be too large for the one currency. By definition a currency area must have one interest rate regime and there are indeed areas which are too large for that to be useful. Thus we have “optimal” currency areas.

Europe is too large for the one currency so that’s the euro that’s a mistake. Lewes is too small so that was a mistake too.

No, no, there's no problem with making mistakes. That’s what markets and liberty are all about - try everything, do more of what works and less of what doesn’t. How else are we going to find out?

But that does leave us with the point that we’re one currency mistake down and when will the other be corrected?

Tim Worstall