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Macroeconomic Issues Viewpoints

A Single Currency for Asia?

by Amitendu Palit

The Effects of the Euro Crisis

The prospects for a common Asian currency have received a considerable setback after the problems experienced by the euro. The financial crisis in the Eurozone—particularly the difficulties suffered by relatively smaller euro economies like Greece, Portugal, and Ireland—has raised serious doubts over the effectiveness of currency integration in facilitating greater integration of trade and investment within a region. If the Eurozone and the euro, with the Eurozone’s much greater institutional, systemic, social, and political similarities than the ASEAN+3, could not avoid a financial catastrophe, then the possibility of any such arrangement in Asia is far less likely.

Indeed, common currencies can probably work only if member countries have a lot in common. There is no denying that noncommonalities among the ASEAN+3, and among the even greater Asian region that includes India, Australia, and New Zealand, are too much to even contemplate formal and common exchange management structures. Apart from economic dissimilarities, matters are further complicated by delicate political and strategic dynamics. The China–Japan–South Korea grouping, for example, harbors considerable political volatility. The Eurozone was free from such pressures. Even then, the members’ economies are finding it difficult to stick to the euro.

The euro crisis also reveals the importance of institutional support in times of trouble. The European Central Bank has tried its best to support the affected countries. But probably that is not enough. It will be unwise of Asia to contemplate a common currency unless the regional institutions are strong enough to sustain multiple bailouts. This will require the growth of contingency measures far larger than the current Chiang Mai corpus.

Final Thoughts

The outbreak of the global financial crisis and the troubles faced by the euro initially raised hopes for the emergence of a common currency in Asia and its gradual growth as a global reserve currency. However, Asia does not appear to be ready for currency integration. Several limitations are hampering a regional currency union, including the large economic, social, and institutional heterogeneities in the region. Countries seem unprepared to converge on common exchange rate management systems and monetary policy frameworks. The region also lacks strong institutions for coordinating monetary and exchange rate policies. The failure of several Eurozone economies to manage their monetary and fiscal health, despite operating in a far more homogeneous region than Asia, has made the already remote possibility of a single Asian currency even more distant.

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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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