Asian Common Currency a Real Possibility

Sources: Single Common Currency for Asia Not Discounted, Is Asian Common Currency Feasible?, An Asian Currency - A Bridge Too Far, Baby Steps to a Common Asian Currency

Financial analysists discussed the subject of an Asian Common Currency at the sidelines of the IMF-World Bank meetings, which ended last week. There has been talk about implementing a common currency into the region since before the 1997 Asian Financial Crisis. The topic has reemerged as Asian countries seek ways to cooperate in the financial sector as a response to the increased economic interdependencies between Asian nations in the 10 years since the crisis. A common currency would also offer more stability by means of a coordinated exchange rate policy. In other words, since an exchange rate adjustment of one country could have a deep impact on another, a unified front is desirable. One of the most important effects of a common currency would be that it would lend itself as a "self-help" mechanisms wherein Asian countries can better prevent, manage, and resolve regional financial problems before they reach crisis levels.

Despite the positives underlying the idea of a common currency, the proposition has its critics. One of the main concern among doubters of the viability of this currency is the fact that there is much more diversity with regards to standards of living and potential growth among the Asian nations. Indeed, the standard deviation of living standards for Asian nations is three times that of European countries. Another barrier is the fact that monetary unity will require from each country a higher degree of liberalization when it comes to control over exchange rates and the mobility of capital than most are willing to adopt. While such concerns have some convinced that an Asian common currency is altogether infeasible, others suggest that this just indicates that the notion will take time to implement. The ideal preconditions that existed when Europe introduced the euro but that either do not yet exist in most of Asia or are just emerging are: 1) high trade interdependencies, 2) common acceptance of basic social and political values (e.g. democracy, market economy), 3) fairly even economic development and comparable standards of living, 4) strong commitment to solidarity.

Although the U.S. no longer opposes the establishment of a single Asian currency outright, its hesitation is indicative of the general lack of a unified stance analysts worldwide are taking with regards to the issue. In any case, time will only tell whether and which concerns were warranted, as Asian officials take a step closer to putting the concept into action.

Questions:

1. Is an Asian Common Currency desirable?
2. In what ways will it help developing Asian countries make progress on the world financial front?
3. What other factors must be taken into consideration in order to implement a common currency in Asia that may be different than those regarding the euro?