Costs and benefits of a common currency for the ASEAN

Abstract

I. Introduction 1 II. Perspectives on Optimum Currency Area 2 III. The Suitability of ASEAN for a Common Currency 4 IV. Constraints on the Adoption of a Common Currency 5 V. Conclusion 7 References 9 14. Rising to the Challenge in Asia: A Study of Financial Markets

Regional Currency or Regional Trade Policy? An East Asian Perspective of 21st Century Growth

“…Hedging removes the instability arising from flexible exchange rates, but equally increases the transaction cost. As such, a common regional currency was considered as a better option to diminish some of the difficulties of a flexible exchange rate system (Madhur, 2002). Some economists even argued that a currency union can primarily reduce inflation (Frankel & Rose, 2002).…”

“…The theoretical overview of the OCA literature suggests some guidelines to get benefits of a currency union. These guidelines comprise greater flexibility in wages and prices among the member countries, greater mobility of factors of production (labor and capital) across countries, more symmetric shocks across countries, more openness among the economies within the union and a larger share of trade among the member nations (Madhur, 2002). Though literature mentions the European Economic and Monetary Union (EMU) as the only empirical example of an optimum currency area, Pomfret (2005) disagrees by referring EMU as a 'monetary policy theory' rather than an 'OCA theory'.…”

“…In response, the post-crisis trend in East Asia had been to move towards the flexible exchange rate system. Performance of the flexible exchange rate regime as a shock absorber had been satisfactory in the immediate post-crisis situation, though increasing volatility in the foreign exchange market raised questions about its longrun success (Madhur, 2002). Moreover, the free-floating system kept East Asian countries away from retaining their monetary autonomy (Lee, Shin, and Park, 2004).…”

Can a Common Currency Induce Intra‐regional Trade? The Southeast Asian Perspective

“…East Asia, including the ASEAN countries, is often pronounced a highly credible optimum currency area. The issue became particularly important following the 1997–98 Asian financial crisis and the rapid recovery of most members from that crisis (Madhur ). Almost all members were able to maintain high economic growth from 2000 onwards.…”

Parallel Integration and ASEAN-EU Trade Potential: an Empirical Analysis

“…The importance on apposite exchange rate regimes for Asian countries after the 1997 Asian financial crisis initiated the need for regional economic integration in East Asia (Madhur, 2002). This realization is clearly reflected in ASEAN intra-and extra-regional trade integration.…”