This paper estimates the effect of common currencies on trade and income. Jeffrey A. Frankel and Andrew K. Rose analyze data from over 200 countries to quantify the impact of currency unions and currency boards on trade and income. They use a two-stage approach: first, they estimate the effect of currency unions on trade, finding that currency unions more than triple trade with other members. Second, they estimate the effect of trade on income, finding that a 1% increase in trade relative to GDP raises income per capita by at least 0.33% over 20 years. The paper concludes that the beneficial effects of currency unions on economic performance come through trade, not through monetary stability or other macroeconomic factors. The results suggest that currency unions boost overall trade and, consequently, income. The study also finds that currency unions do not lead to trade diversion. The paper highlights the importance of trade with large, nearby, or historically linked countries in determining the benefits of currency unions. The findings support the idea that currency unions enhance economic performance by promoting trade, rather than through monetary policy. The study is based on empirical analysis using gravity models and instrumental variable techniques to address potential endogeneity issues. The results are robust and significant, showing that currency unions have a positive impact on trade and income. The paper also discusses the limitations of the study, including the potential for endogeneity and the need for further research on the long-term effects of currency unions.This paper estimates the effect of common currencies on trade and income. Jeffrey A. Frankel and Andrew K. Rose analyze data from over 200 countries to quantify the impact of currency unions and currency boards on trade and income. They use a two-stage approach: first, they estimate the effect of currency unions on trade, finding that currency unions more than triple trade with other members. Second, they estimate the effect of trade on income, finding that a 1% increase in trade relative to GDP raises income per capita by at least 0.33% over 20 years. The paper concludes that the beneficial effects of currency unions on economic performance come through trade, not through monetary stability or other macroeconomic factors. The results suggest that currency unions boost overall trade and, consequently, income. The study also finds that currency unions do not lead to trade diversion. The paper highlights the importance of trade with large, nearby, or historically linked countries in determining the benefits of currency unions. The findings support the idea that currency unions enhance economic performance by promoting trade, rather than through monetary policy. The study is based on empirical analysis using gravity models and instrumental variable techniques to address potential endogeneity issues. The results are robust and significant, showing that currency unions have a positive impact on trade and income. The paper also discusses the limitations of the study, including the potential for endogeneity and the need for further research on the long-term effects of currency unions.