What do we now know about currency unions?

The paper presents the text of an inaugural lecture given at the Bank of England in December 2005 in memory of John Flemming. It provides a personal view of the lessons that can be drawn about currency unions from the experience of the European Monetary Union. It argues that business cycle concurrence is a less important criterion for participation than was once believed. Most important is the integration of financial markets and the shrinking of financial premia that individual countries face: this opens the way for countries to share risk, thereby enhancing welfare.