This article seeks to provide a closer integration of the theory of op
timum currency areas with the theory of international trade. A currenc
y area is treated as a continuous variable ranging from zero to one: z
ero if there is no enlargement, and some positive value otherwise, cor
responding exactly to the percentage of trade in the enlarged area. Th
e benefits of widening a currency area are then regarded, in terms of
conventional trade theory, as equivalent to a reduction in transportat
ion cost. The costs of widening a currency area are seen, instead, wit
h reference to open economy macroeconomics, as a drop in the speed of
adjustment of the terms of trade to their long-run equilibrium level.
On this basis, it is shown that the marginal benefits of enlarging a c
urrency area fall, the marginal costs rise, and an optimum size arises
. But this size depends heavily on the optimal composition of the memb
ers.