Should Australia join the Euro?

Well, that may sound like a pretty silly question with all the Euro mess hoo-hah at the moment.  With riots in Greece and Spain, and "austerity" such a dirty word, why would any country want to join the Euro?  And to be clear, by joining the Euro, I mean completely dropping the AUD as legal tender, and making EUR legal tender in Australia.  Well, 17 countries have joined the Euro.  Why?  Surely, a nation must have a good reason to give up it's national currency, and all the political privileges that go with it.  Was it an experimental whim doomed to failure, or are their deeper rationales at play?

Why join a currency union?

On the surface, the primary reason to join a currency union is to facilitate better and more efficient trading relationships.  Trading contracts within a currency zone are simply simpler.  They do not need to consider, exchange rates, relative interest rates, hedging, etc.

Under the surface, a damn good reason to join a currency union is because your currency is about to collapse.  This reason alone will cause the Euro to grow over time.  It is the same reason that the UK will soon join the Euro, and somewhat related to why Greece will never leave the Euro.

Beyond political reasons, I cannot think of one reason why a country would not want to join a currency union.

Stability of Euro currency

Greece has already defaulted, and it did not exit the currency union.  With California about to default  on their bonds and obligations, is there any talk of California getting kicked out of the USD currency union?  If the NSW government defaults on it's debts, would it get kicked out of the AUD?  What about a large corporate?  Does this even make sense?

Firstly, the currency is not at risk because of a default of someone's debt that happens to be denominated in that currency.  Secondly, as a currency issuer, you cannot actually control who uses your currency.

Let's assume that, at some point in the near future, that all the current Euro issues have been resolved, either through austerity, tax increases, default, etc, and that despite all the challenges, the Euro currency seems to have passed the worst of it.  With the threat of the collapse of the Euro a long distant memory, what other objections are there? 

National currency vs International currency 

One of the greatest achievements the Euro is that it is the first truly international fiat currency.  It's issuer is not a national government, and therefore the currency is out control of the politicians and currency issuance cannot be used as a source of government revenue.  Compare this to the US dollar, which is a national currency (used worldwide), and is used to fund US government deficit spending, including future obligations made be current politicians.

Once all the political interference is removed, the currency manager can focus on currency management alone, ie, currency stability.  Euro architect Mundell, said it simply in The Euro is a big success - no kidding:

It puts monetary policy out of the reach of politicians

Currency management across diverse productivity profiles

Consider the productivity variance of states within a nation.  In Australia, we have mining states Western Australia & Queensland, cosmopolitan service states Victoria and New South Wales, and Tasmania.  Similarly, in the states you have California vs New York vs Texas vs New Hampshire.  If currency management across diverse productivity regions is such an issue, why is the "one currency" issue never raised at the state level? Answer: it isn't an issue.

Euro currency vs  other International currency

It is reasonably likely that other international currency regions will form.  In the future, there may well be an Asian international currency, an American International currency, and an Oceanic/Pacific international currency.  Does it matter which currency union Australia should join?

Not really. The primary consideration should be currency being used by a nations largest trading partners,  but if these currencies do exist, there will be some history performance of inflation that can be compared.

Conclusion

Australia should join the Euro.