Definition of 'Currency Union'
When two or more groups (usually countries) share a common currency or decide to peg their exchange rates in order to keep the value of their currency at a certain level. One of the main goals of forming a currency union is to synchronize and manage each country's monetary policy.
Also referred to as a "monetary union".
Investopedia explains 'Currency Union'
A group of countries (or regions) using a common currency. For example, in 1979, eight European countries created the European Monetary System (EMS). This system consisted of mutually fixed exchange rates between these countries. In 2002, 12 European countries agreed to a common monetary policy, thus forming the European Monetary Union. One reason why countries form these systems is to lower the transaction costs of cross-border trade.