Concerning currencies in Asia, there is a fought of a single currency. Asia should consider whether to follow the global trend toward currency consolidation by moving toward the adoption of a single Asian currency over the long run. The time required to complete the process, including the transitional exchange rate arrangements and policy coordination, also will not be short. Two sets of factors are likely to encourage the adoption of common currencies' the increased number of countries in the world and the trend toward globalization.
In an increasingly globalizing world, there is likely to be a greater synchronization of business cycles. Hence, the benefits of having fewer currencies to conduct cross-border business, especially at the regional level, are likely to increase. The conditions and necessary steps to introduce a single Asian currency are many and daunting, but they could be carried out in the long run.
There are five major steps to be taken toward a single Asian currency strengthening of the Chiang Mai Initiative that was put in place by the Association of Southeast Asian Nations (ASEAN)+3 finance ministers in May 2000; greater regional bond market development; trade cooperation through free trade agreements hand in hand with the fourth step, cooperation on intraregional exchange rate stability. The fifth step is the application of policy convergence criteria and the introduction of a single currency.
Before creating a single Asian currency, the East Asian countries would have to overcome several hurdles. These include fully integrating goods and services markets in the region, greater labor market integration, a large integrated capital market, and a convergence in the economic structures and level of economic development of participating countries.
On the monetary side, of course, participating countries would have to give up independent monetary policy and be subject to a single regional authority. On the fiscal side, participating countries would be required to improve their fiscal positions.
In the long run there may be many more countries that could support the single currency, such as India, which might want to increase trade and investment integration with East Asia. This means that the size of the optimum currency area in Asia should be expanded through intensified economic integration and convergence as time passes.
A global single currency, which has been advocated by some, is a far more difficult prospect than a regional single currency. Even a regional central bank is not easy to operate and a global central bank would be almost impossible at this stage. The current as well as prospective status of global economic integration has not yet made a global single currency a necessary or desirable institution, let alone a possible or likely one.
Although the European experience is seen as a model for the way forward on financial integration, the question arises whether such a model would apply to East Asia. In the case of Asia, the concept of "region" is premised on geographical reasons. The economic reality, however, is that there is substantial diversity in the economies, each with its own idiosyncracies.