A currency union involves two or more states sharing the same currency. This arrangement is characterized by the participating countries agreeing to use a single currency, which facilitates trade and investment among them by eliminating exchange rate fluctuations and promoting price transparency. A well-known example of a currency union is the Eurozone, where member countries adopt the euro as their official currency, allowing for greater economic stability and integration.
In a currency union, the members often coordinate their monetary policies to manage inflation and interest rates effectively, further enhancing economic collaboration. This setup can lead to increased trade among member countries, reduced transaction costs, and greater economic stability.
The other options represent different concepts that do not capture the essence of a currency union. For instance, having different currencies does not constitute a currency union, and complete integration of economies goes beyond simply sharing a currency, as it may involve political and fiscal policy alignment. Likewise, international trade agreements focus on trade terms rather than currency management.