Friday , 29 March 2024

Asean single currency has long way to go

By Jerry Maglunog

As the integration of the Association of Southeast Asian Nations (Asean) is almost here, another proposal that is facing a lot of scrutiny is the single currency similar to the euro in Europe.

To be called the Asian Monetary Unit (AMU), the proposal is facing a lukewarm reception because of many factors that involve the differing culture and practices among the 10 Asean members.

The AMU, which has been created as the joint project of 21st-century COE project of Hitotsubashi University and Rieti, is a common currency basket composed of 13 East Asian currencies, such as the Ase
an 10, plus Japan, Chi
na and South Korea.

These data have been published on the website of Rieti since September 2005. After four years passed,
a common currency basket composed of 13 AMU currencies, plus three other countries—Australia, New Zealand and India—that are strongly connected with Asian countries, is newly created as “AMU-wide.”

The AMU-wide, which is a common currency basket composed of a wider range of currencies, will be expected to be utilized as a surveillance indicator corresponding to the extensive regional economies. The calculation methodology of the AMU-wide and AMU-wide Deviation Indicators are same as those of the AMU.

The benchmark period is defined as the total trade balance of member countries; the total trade balance of the member countries (excluding Japan) with Japan; and the total trade balance of member countries with the rest of world.

Here at home, the proposal is “not applicable,” according to former congressman Lorenzo “Erin” Tañada III. The former lawmaker and chairman of the House committee on globalization said a single currency is detrimental to countries with poor export growth, like the Philippines.

A single currency will also make any country in the Asean bloc to be in the snake pit if any of the proposed 16 nations fall into recession.

“What if Malaysia suffers from recession due to its ringgit scandal, what will happen to us?” the former legislator said.

Tañada is not the only personality who has warned of repercussions in case the Asean uses a single currency. As early as 2012, then-Asian Development Bank chief economist Changyong Rhee already warned that a single note among countries in Asia may not result to positive developments.

According to Rhee, countries that want to create AMU should have a wait- and-see attitude before setting their own collective currency. In those years, countries called Pigs (Portugal, Ireland, Greece and Spain) were having liquidity problems.

The problems caused the euro to flunk by at least 12 percent. Today, Grece is in total collapse as its banks were forced to stop servicing clients to avoid further monetary slump and hyperinflation.

The secretary general of the Asean, Le Luong Minh, is also called on the single currency proposal. “That’s not the intention of Asean,” Minh said, stressing that it is not advisable, nor enforce- able to have a single currency in Asean especially after the euro experience.

He cited the “yawning gap” between the economies of Asean members—say, the very wealthy Singapore and least developed Cambodia—obstacles in the way of developing a single currency for the Asean are stark, Minh noted.

He also said that the political systems and the levels of development of Asean members are varied, unlike that of the European Union.

The expected benefits of having a single currency usually include lower transaction costs, reduced exchange risk, price stability, and to become one of the major currencies in the world.

However, when countries form a single currency, they give up the power of
an independent monetary policy and can no longer use tools, like interest rates, to address the cyclical needs of a country’s specific industries or financial services.

Instead of looking toward a single currency, Asean is focusing on its 2015 goal of economic integration, Minh said.

Minh said the goal of becoming a single market by the end of 2015 is on track. The Asean Economic Community (AEC) targets 90 percent-to-95 percent rate of implementation of about 300 guidelines in order for the integration to be imposed.

Minh said a number of measures, though, have yet to be transformed into national plans of individual countries such as those pertaining to standards, transportation and single window. For the latter, only seven countries have committed and three— Brunei Darussalam, Myanmar and Lao PDR—have yet to go on board.

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