Costs and Benefits of a Common Currency for ASEAN

Date: May 2002
Type: Papers and Briefs
Country:
Subject:
Series: Economics Working Papers
ISSN: 1655-5252 (print)
Author: Madhur, Srinivasa

Description

Since the 1997 Asian financial crisis, a popular view among academic economists and policymakers is that developing countries with open capital accounts have only two options in their exchange rate regimes: either float the exchange rate freely or fix it hard. Within a fixed exchange rate regime, two variants can be conceived: (i) a currency board arrangement or its equivalent, the domestic usage of the currency of another country; and (ii) adoption of a new common currency by a group of countries, or the formation of a monetary union.

This paper assesses the costs and benefits of the second variant for the Association of Southeast Asian Nations (ASEAN). The paper concludes that although the constraints on the adoption of a common currency by ASEAN are formidable, the long-run goal of a common currency for the region may be worth considering seriously, especially because, judged by the criterion of optimum currency area, the region is as suitable for the adoption of a common currency as Europe was prior to the Maastricht Treaty.

Contents

  • Abstract
  • Introduction
  • Perspectives on Optimum Currency Area
  • The Suitability of ASEAN for a Common Currency
  • Constraints on the Adoption of a Common Currency
  • Conclusion
  • References