Towards A Common Asian Currency?

If Europe can have it why not Asia? The Asian Development Bank (ADB) has recently revived a six-year-old idea for a common Asian currency and the matter came up at a meeting of “Asean + 3″ finance ministers on the sidelines of the Asia Development Bank (ADB) meeting at Hyderabad in India early this month.

The theme was that Asian leaders should create a new framework of security to make up for the absence of a firm mechanism of regional cooperation.

The idea of a single currency for Asia and of integrating the region’s economies came about after the financial crisis of 1997-98 and has been backed by the Asian Development Bank President Haruhiko Kuroda.

“A common Asian currency would make it easier for companies and governments to borrow at lower rates of interest, according to Standard & Poor’s. The Indian government is likely to step up its efforts to join the league of Asian countries that are working on a plan to evolve a common currency unit.”

This comes in the wake of finance ministers of Asean nations making it almost clear that they would not take India into account while studying the viability of a common unit.

Finance ministers Jin Renqing of China, Sadakazu Tanigaki of Japan and Han Duck Soo of South Korea agreed May 4 to work toward a unified Asian currency. The governments agreed to set up a research team to explore the introduction of the currency by the end of 2006. Finance ministers said high oil prices and rising interest rates may threaten economies in the region.

Asian countries are becoming large sources of investments for each other. “The various FTAs being evolved among countries in the region is also boosting integration. A common currency could therefore be desirable for facilitating intra-regional trade and investments.

“Perhaps that’s why the Asian Development Bank has proposed the creation of Asian currency unit (ACU) recently, as a step towards creating a common currency eventually. The creation of ACU, just like the European Currency Unit (ECU) preceding euro, could be the answer for the time being.

“Of course, some criteria need to be fulfilled for a region to be an optimal currency area, besides strong monetary coordination that effectively erodes the monetary sovereignty of members.

“However, the creation of a regional unit of account or ACU, just like the European Currency Unit (ECU) preceding euro, could be the answer for the time being.

“The ACU will not require the surrender of monetary sovereignty, while providing most of the benefits of common currency.”

An ADB study states the major hurdles to the adoption of a common currency in Asia as:

Diversity in economic development across countries; Weakness in financial sectors; Inadequacy of region-level resource pooling mechanisms and institutions required for forming and managing a currency union; Lack of political preconditions required for such co-operation.

“The marked difference between EU and Asia lies in the immense diversity in the development stages of the economies. It varies from extremely poor to the highly developed.”