Does leaving a currency union reduce international trade? We answer this question
using a large annual panel data set covering 217 countries from 1948 through 1997.
During this sample a large number of countries left currency unions; they experienced
economically and statistically significant declines in bilateral trade, after accounting
for other factors. Assuming symmetry, we estimate that a pair of countries that starts
to use a common currency experiences a doubling in bilateral trade.