This paper by Jeffrey A. Frankel and Andrew K. Rose examines the impact of common currencies on trade and income. Using a gravity model and data from over 200 countries, the authors find that currency unions and currency boards significantly increase bilateral trade, with no evidence of trade diversion. They estimate that a one percentage point increase in trade relative to GDP raises income per capita by at least 0.33 percentage points over twenty years. The authors conclude that the benefits of currency unions and boards come primarily from stimulating trade, rather than through macroeconomic or financial influences. They also find that the effectiveness of currency unions depends on the size and proximity of trading partners, suggesting that adopting a currency of a larger or more geographically close trading partner yields greater benefits. The paper provides estimates of the effects of adopting the dollar or euro on trade and income, highlighting the potential gains from currency unions with major trading partners.This paper by Jeffrey A. Frankel and Andrew K. Rose examines the impact of common currencies on trade and income. Using a gravity model and data from over 200 countries, the authors find that currency unions and currency boards significantly increase bilateral trade, with no evidence of trade diversion. They estimate that a one percentage point increase in trade relative to GDP raises income per capita by at least 0.33 percentage points over twenty years. The authors conclude that the benefits of currency unions and boards come primarily from stimulating trade, rather than through macroeconomic or financial influences. They also find that the effectiveness of currency unions depends on the size and proximity of trading partners, suggesting that adopting a currency of a larger or more geographically close trading partner yields greater benefits. The paper provides estimates of the effects of adopting the dollar or euro on trade and income, highlighting the potential gains from currency unions with major trading partners.