Economist Says Single Currency for Asia Unlikely Amitendu Palit on the pros and cons of an Asian single currency From QFINANCE: The Ultimate Resource 4th Edition, Published September 2013 www.qfinance.com Amitendu Palit is an economist specializing in comparative studies of China and India. Currently he is a senior research fellow at the National University of Singapore. His most recent book is China-India Economist and his latest article is in Bloomsbury's QFINANCE: The Ultimate Resource, out September 2013.
The beginnings of a common currency in Asia can be traced back to the Asian financial crisis of 1997. The crisis drove home the importance of greater policy coordination among the regional economies, (such as Japan, South Korea, China, Taiwan, Hong Kong, Singapore, Malaysia, Indonesia, Thailand and India, though not all countries were affected in equal measure. Economies like China and India suffered relatively less because of their limited integration with the global financial system. On paper, and with the rupee as a new low, a common currency has benefits for Asia. These include more seamless integration of trade and capital flows within the region. This follows from avoiding costs of invoicing products and services in different currencies when they cross borders, and avoiding exchange rate fluctuations. However, while the ASEAN is the most cohesive regional grouping in Asia, it differs from the European Union in several respects. The most important difference, perhaps, is the lack of regional institutions with the capacity to serve as overarching regulators. It is hardly equivalent to the EU, and more importantly, ASEAN members continue to retain sovereignty over their monetary policies. Such sovereignty must be sacrificed if the move to a common currency needs to be made. Also, the financial crisis in the Eurozone has raised serious doubts over the effectiveness of currency integration in facilitating greater integration of trade and investment with a region. Indeed, common currencies can probably work only if member countries have a lot on common, and apart from economic dissimilarities between ASEAN countries, matters are complicated by political dynamics. Asia does not appear to be ready for currency integration. Several limitations are hampering a regional currency union, including the large economic, social and institutional heterogeneities in the region. Countries seem unprepared to converge on common exchange rate management systems and monetary policy frameworks. Finally, the failure of several Eurozone economies to manage their monetary and fiscal health, despite operating in a far more homogeneous region than Asia, has arguably made the already remove possibility of a single Asian currency even more distant. For further information, or to contact the author about a longer piece or viewpoint, please do not hesitate to get in touch with Sophia.Blackwell@Bloomsbury.com- Tel: 020 7631 5831 More information at www.qfinance.com About QFINANCE: The Ultimate Resource QFINANCE is a unique collaboration of more than 300 of the world’s leading practitioners and visionaries in finance and financial management, providing an unparalleled range of crossreferenced resources, which are sure to satisfy the hungriest of minds. www.qfinance.com