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Macroeconomic Issues Viewpoints

A Single Currency for Asia?

by Amitendu Palit


Asia’s efforts to move toward a common regional currency appear to have stalled. Although the Asian financial crisis of 1997 created the tempo for greater monetary policy and exchange rate coordination in the region, large heterogeneities in economic structures, policies, and institutions among regional economies have prevented decisive moves to a common currency. Asia lacks appropriate institutions for adopting common monetary policies and moving to a single currency. The problems faced by the euro have further diminished the prospects for a single currency in the region.

The key challenges facing implementation of a single currency for Asia are:

  • the Asian financial crisis of 1997, the need for greater policy coordination, the Chiang Mai Initiative, and the Asian Currency Unit (ACU);

  • ASEAN’s centrality in a common Asian currency and its lack of enabling conditions;

  • the difference in exchange rate arrangements in the region;

  • the question as to whether Asia could even contemplate a single currency, when the euro faces crisis despite covering a more homogeneous economic region.

One of the consequences of the prolonged economic contraction and financial downturn in Europe is the skepticism it has engendered about the prospects of a unified regional currency in Asia. There was a time when Asia was seriously considering the prospect of adopting a common currency. But the troubles of the euro have made the South East Asian economies wary of currency unification. South East Asia, or more specifically the ASEAN group of economies, is central to moves toward a single Asian currency. The lack of enthusiasm of the ASEAN on a common legal tender for the region underscores the erosion in credibility that the concept of a single regional currency has suffered following the European crisis.

The 1997 Asian Financial Crisis and the Birth of the Chiang Mai Initiative

The beginnings of a common currency in Asia can be traced to the Asian financial crisis of 1997. The crisis drove home the importance of greater policy coordination among the regional economies, particularly the large economies of North East, South East and South Asia. These regions comprise several large economies such as Japan, South Korea, China, Taiwan, Hong Kong, Singapore, Malaysia, Indonesia, Thailand, and India. Most of these countries were affected by the crisis of 1997, though not in equal measure. Economies like China and India suffered relatively less because of their limited integration with the global financial system. Nonetheless, the urgency of policy coordination was realized by all the economies notwithstanding the difference in the degree of the difficulty they encountered.

A major driver of greater policy and institutional coordination among the regional economies was their disappointment with the policy responses of the IMF during the crisis. The crisis highlighted the importance of the region being self-sufficient in warding off contagion-type situations precipitated by speculative attacks on national currencies. This realization gave birth to the Chiang Mai Initiative (CMI). The CMI created a pool of reserve currency and extended bilateral credit swaps to participating members. The reserve pool and the swaps are intended to help regional central banks to maintain the stability of their currencies in the event of speculative attacks. The CMI has 13 participating economies, which include the 10 ASEAN members (Brunei, Cambodia, Laos, Malaysia, Myanmar, Indonesia, the Philippines, Singapore, Thailand, and Vietnam), China (including the Hong Kong Monetary Authority), Japan, and South Korea. It has been decided that the current corpus of the CMI should be doubled, from US$120 billion to US$240 billion.

The move on the CMI was accompanied by the first steps for forming an Asian currency unit (ACU) in the middle of the last decade. Following the interest expressed by China, Japan, and South Korea in greater coordination of their currencies at the annual meeting of the Asian Development Bank in May 2006, the idea of an ACU was formally floated. The ACU is statistically conceptualized as a basket of currencies reflecting the movements of various national currencies against a numeraire currency. This was expected to be a precursor to an eventual common currency in Asia. However, the move to a common currency has been sluggish for several reasons. Many of these relate to typical features of the region and its economies.

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Further reading


  • Das, Sanchita Basu (ed). Achieving the ASEAN Economic Community 2015. Singapore: Institute of Southeast Asian Studies (ISEAS), 2012. Online at:


  • Grenville, Stephen. “The euro crisis: Lessons for East Asia.” The Interpreter (November 29, 2011). Online at:
  • Henning, C. Randall. “The future of the Chiang Mai Initiative: An Asian monetary fund.” Policy brief PB09-5. Peterson Institute for International Economics, February 2009. Online at:
  • Sen Gupta, Abhijit. “Prospects for a single Asian currency.” Public Policy Review 6:5 (June 2010): 873–892. Online at: [PDF].
  • Sen Gupta, Abhijit, and Amitendu Palit. “Feasibility of an Asian currency unit.” Working paper no. 208. Indian Council for Research on International Economic Relations (ICRIER), March 2008. Online at: [PDF].


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