Question:
Should asean countries adopt common currency?
A currency union is a state achieved when two countries come together and decide to adopt a common currency to keep the value and certain level of their currency. The main aim of the adoption of the currency union is the management and synchronization of the monetary policies of the countries (Hem, Subhash, & Puneet, 2015). A currency union is also known as the monetary union. The states enter into different treaties with the aim of achieving the currency union. This means that the countries will have to share a common currency while transacting. In addition, the currency union may be limited in further integration according to the treaties which the countries are able to sign. Additional combinations of issues such as the single market for the countries may be adopted with the view of giving the currency union strength.
In the past, currency unions have been adopted, and there are different challenges and pros which come with it. The main goals of these past currency unions have been to facilitate trade among the countries and strengthening of their economies. Moreover, the unifying factor of the currency union has been looked at. The main reason is that the common currency is able to unite the countries since they are operating from a common currency base. But the currency union is not as simple as it may sound (Albertin & IMF Institute, 2008). History in the way euro has faced with the currency union should be a teacher in any countries who are thinking of the same move. The pioneers of the Euro, which is a common currency for the European nations had a great dream that the currency will overtake the US dollar and become a dominant reserve currency. But decades are passing, and troubles with the Euro are increase deeming the dream further. The Greek debt is affecting the Euro and meaning that the other countries in this treat are being affected as well. The debt issue is one of the key lessons which the monetary union for any countries should be able to learn. Monetary crisis in one of the members’ countries will be able to affect the progress of the other countries concerning their economic development and monetary factors. In addition, this slow down on some countries on eurozone has turned the heat on the political arena on the countries in these regions (Binner, 2011). The common currency in the eurozone is not uniting these countries. The main aim of the Euro was to create harmony and peace. Now some of the countries in the zone are viewing others with anger and distrust. They are blaming them for their economic problems and lack of progress.
In addition, economic growth is the key goal of any country. The analysis on the growth achieved by the euro union is a critical indicator that the currency union is unlikely to solve the essential problems in the individual countries (Friberg, 2013). Nevertheless, the currency union will be able to drag the other countries prospering into the economic pit. The chart below shows an overview that countries with their national currency were able to enjoy more economic development averagely that the euro union countries. The development record is a key lesson which the ASEAN should be able to learn before adopting any currency union.
Figure 1: comparison of development record in non-euro and euro countries
The main problem which emerged for the euro is the difference in the countries development status. This factor makes some countries feel that they are being dragged behind and that they will be unable to achieve their economic goals. After this feeling, countries will try to break themselves out of the treaties. The economic underperformance was able to happen for the British government through the Brexit agenda. Bringing the economic development to the same level is a hard task and which cannot be achieved easily (Kablamaci & Gozgor, 2016). These countries have different economies which they have grown over the year and dragging them down while elevating others will make them have a sneaky feeling in the treaties. Joining the countries into the common currency was not a hard task. It is clear that maintaining the union was one of the toughest tasks experienced. The achievement of the goals has remained a dream.
The euro is a key warning sign of the ASEAN reforms concerning the currency integration. First, time is a key factor when it comes to the integration of the monetary policies. A consensus is key on different issues which are related to the countries interests and culture. Association of South East Asian Nations (ASEAN), is an intergovernmental agency, where the countries have no sovereignty sharing among themselves. There are some key advantages which countries can gain from the monetary integration and adopt a common currency for ASEAN; the countries will be able to attain the benefits (Ghosh & Chakrabarti, 2016). Nevertheless, there are key challenges which must be addressed before the adoption of the monetary integration in any country. This is the case which needs to be carried out for the ASEAN countries.
The ASEAN union will be able to enhance the stability of the economic status of the member countries as well as their political voices. In addition, the monetary integration will be able to lower the cost of transaction among the countries, reduction of the exchange rates risks and enhance the price stability among the nations (Aflouk, Mazier & On, 2016). Moreover, any monetary union among them aims to make them a global player in different perspectives. And when the cards are plated well, this is a factor which is easily achieved by the member countries and is also a goal of having the monetary integration for the ASEAN.
Nevertheless, there are challenges which are likely to affect the adoption of a common currency for the ASEAN countries. First, the ASEAN countries are at different levels of development. This from the eurozone has been a critical challenge which has led the countries in deep wars. The ASEAN countries have five key development categories among them, and these will serve as a key barrier to the adoption of the single currency. Singapore is at its level of development, while China and Brunei are following regarding economic growth. Malaysia & Thailand, Philippines & Indonesia are next to the next level, which is followed by Myanmar, and lastly, Cambodia, Laos and Timor Leste are in the lower end (Vu, Tuan Khai, 2016). The adoption of the common currency will give the monetary union the power to control the monetary policies for the entire zone. This means that the independent countries will be unable to make their separate decisions concerning the interest rates to enhance their business cycle. The major blow will happen to the upper developed countries, which will have the feeling that they are contributing a lot to the zone than the other countries. More importantly, these countries will be able to experience a slowdown in terms of their economic development than they have experienced in the last decade. The main reason is that they will have to pull up the other countries up and this will hinder the functionality of the common currency among the countries.
More importantly, most of the countries in the ASEAN category are still in the development and underdeveloped stage regarding their economic grade. The rate of growth in the different countries is at different levels and adopting the common currency will hinder their paces. The differences in economic development have a significant impact on the way the countries will handle the issues to resolve the economic crisis from arising (Binner et al., 2011). The gap between the countries is likely to affect the adoption of such policies and having the eurozone in trouble, the countries in the upper hand will have to be careful when signing such treaties.
In addition, external economic factors are likely to affect the functionality of the ASEAN countries once they sign such treaties. The states have for long reliant on natural resources. Although they are breaking the norm, the dependence on these sources has not been achieved. External economic shocks have happened before, and they have affected the countries with a standard base of economic growth. The effect of the changes in oil prices is a key indicator that nations with a common support of operation will be affected profoundly. Therefore using the euro as an example, it is clear that in the occurrence of any economic shock, these countries will be the most affected. Since the independent countries cannot resolve the issue a lot, the existence of such problems in one of the countries will drag all the countries in the same pit. The countries will have a closer look at the effect of this, and this will hinder any agreement on the common currency for the ASEAN.
In addition, the difference in economic development status is brought about by the difference in the policies in the countries (Kabir & Salim, 2016). The adoption of the common currency for these countries will affect their policies regarding development plans. The developed countries are likely to feel the pinch more, and since they have a lesson from the euro, the ASEAN monetary integration is unlikely to happen.
In addition, the political arena is a key indicator in the development strategies. With all the backup of the governmental policies in euro, which has to be noted to be similar, the eurozone was able to fail (Mullineux, 2015). The ASEAN has difference in political systems, and this is likely to affect any economic agreements for the countries. The political voices are key in enhancing the development agendas for the unions, and the different systems are likely to affect any monetary contracts between the countries. The effect of the politics was lower in the eurozone, but the financial integration is failing. Now considering the ASEAN, who have different systems, and which are likely to take various stands, the adoption is next to impossible for this zone.
More importantly, as seen earlier, the economic performance of the countries using common currencies is lower than those with independent currencies. The ASEAN zone has some of the rapidly growing countries in the world. Considering the effect of the common currencies o countries economic development is going to place a second thought on some of these countries. With the likes of China breaking in world greatest economies, they are most likely to oppose the idea of shared currency since it will affect their economies ([email protected], & [email protected], 2016). This will be a great opposition from the developed and developing countries such as China and Singapore. With the great difference in the rate of development and the development status, some of the key countries and especially the ones in the upper end will oppose the monetary integration for this zone.
Developed countries require the power and freedom to control several monetary factors within their states. The freedom is a crucial factor which is not easily achieved the moment the single currency is adopted since the monetary unions can control such developments (Asonuma et al., 2012). The likes of Singapore and China are enjoying their independent decisions in their financial services, and it will not be easy to let go and agree to adopt the standard currency for the zone.
In conclusion, the eurozone is a great example for the ASEAN to learn from and get a way forward. The most decisions and experience from euro is that the standard currency for the ASEAN will not be able to function. The political status, the economic development record for the euro is key indicators which will place a barrier to the adoption of the monetary integration for the ASEAN. In addition, the different levels of development in the countries in the ASEAN will be a crucial barrier to the adoption of the common currency. Achieving a common ground, where all the countries will experience the development status will not be easy, and this creates an environment where some of the nations cannot agree to such a treaty.
References
Aflouk, N., Mazier, J., & On, M. K. (January 01, 2016). Impact of Monetary Regime and Exchange Rates on ASEAN Economic Integration.
Albertin, G., & IMF Institute. (2008). Trade effects of currency unions: Do economic dissimilarities matter?. Washington, D.C: International Monetary Fund.
Asonuma, T., Debrun, X., Masson, P. R., & International Monetary Fund. (2012). Welfare effects of monetary integration: The Common Monetary Area and beyond. Washington, D.C.: International Monetary Fund.
Binner, J. M. (2011). Do the ASEAN countries and Taiwan form a common currency area?. (Journal of international money and finance, 30, 7, 1429-1435.)
Binner, J., Chen, S. H., Lai, K. H., Mullineux, A., & Swofford, J. L. (January 01, 2011). Do the ASEAN countries and Taiwan form a common currency area?. Journal of International Money and Finance, 30, 7, 1429-1435.
Friberg, R. (January 01, 2013). Common currency, common market?. Journal of the European Economic Association, 1, 650-661.
Ghosh, I., & Chakrabarti, S. (January 01, 2016). Inward and Outward Foreign Investments of the Asian Economies in Transition and India.
Hem, C. B., Subhash, C. S., & Puneet, V. (January 01, 2015). Monetary policy synchronization in the ASEAN-5 region: an exchange rate perspective. Applied Economics, 47, 1, 100-112.
International Conference on “Dynamics of Regional Trade Agreements and WTO: Developing Countries’ Perspectives”, Ahmed, S., Ashraf, S., & Jamia Millia Islamia (India). (2011). Regional and multilateral trade in Developing countries. New Delhi: Routledge.
Kabir, S., & Salim, R. (November 01, 2016). CAN A COMMON CURRENCY INDUCE INTRA-REGIONAL TRADE? THE SOUTHEAST ASIAN PERSPECTIVE. Review of Urban & Regional Development Studies, 28, 3, 218-234.
Kablamaci, B., & Gozgor, G. (January 01, 2016). Economic Crisis and its Impact on Regionalism and Globalism.
[email protected], ., & [email protected], . (March 10, 2016). What Lessons Can ASEAN Learn from the EU?. [email protected], 2016-3.
Mullineux, A. (January 01, 2015). Implications of the Eurozone crisis for monetary unions in sub-Saharan Africa. African Finance Journal, 17, 1, 21-40.
Vu, Tuan Khai. (2016). Examining the Possibility of Introducing a Common Currency for ASEAN ? An empirical analysis of symmetry of shocks. ??????????????
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