Liechtenstein Politische Schriften
presume that few VSC have their own independent currency. The provi- sion of the public good «currency» and the maintenance of an own mo - n e tary policy are associated with high fixed costs and therefore exhibit considerable economies of scale. VSC are hence not expected to have a currency of their own from a cost view. Additionally, it is difficult to imagine that a VSC constitutes an optimal currency area (OCA) accor- ding to the OCA theory82, where other factors besides costs also play an important role. Table A.9 shows 7 out of 21 VSC with their own currency despite the cost argument against it. Besides Belize and Brunei, where we con- jectured that preference homogeneity between them and their adjacent countries is relatively low and an own currency, therefore, is slightly more likely, these are the Bahamas, Barbados, Iceland, Malta and the Seychelles. The Caribbean states created a currency union, and the main currency is the East Caribbean dollar, which is pegged to the US dollar. Luxembourg is also part of a currency union, and in the remaining seven VSC, currencies of larger adjacent countries or main traditional trading partners circulate. Depending on the judgment of a currency union, the picture is more or less clear. When the possession of an own currency is strictly in- terpreted, then 14 out of 21 VSC do not have their own currency and therefore comply with our theoretical expectation. Hence, Hypothesis 1 is confirmed for the public good «currency». Note furthermore that the Bahamas, Barbados, Belize and Brunei have a pegged exchange rate with the US dollar and therefore give up much of the flexibility of their mone - tary policy for the advantage of lower costs. Still, they have to bear the costs of printing and distributing money as well as all the administrative costs associated with a monetary system. The optimal exchange rate system for those VSC which have an own currency is an interesting question. There are many arguments for a pegged or a fixed exchange rate system (see, e.g., Olafsson, 1998), but there may be conditions which justify other systems (see, e.g., Krugman, 1991, for the special case of Iceland, and Fairbairn, 1994, as well as Jayaraman, 2000, for Oceania). Note that – without being able to go into 92 
Very small countries: organizational choice and international outsourcing 82See, e.g., De Grauwe (1994), Eichengreen (1990), Kenen (1969), McKinnon (1963), Mundell (1961) and Tavlas (1993).


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