Asia is hit badly by the current recession in the United States. Investors are shying away, stock markets are down, thousands are losing jobs.
In this scenario, there is once again talk of evolving a common currency for Asia for safeguarding its financial stability. But there are many hurdles on its way.
One is the `hegemony' of stronger states. Smaller Southeast Asian states feel threatened by China's growing economic power and Japan's isolationist economic policy. They also question whether the currencies of Australia and New Zealand should be included with India. Japan is not too comfortable with China's emergence and the fact that the yen may be overshadowed by the yuan. India too has been so far cool to the proposal for a common ASEAN currency, holding that it would require more coordinated efforts on the parts of all the participants and removal of many political and technical obstacles.
Some argue that it is impossible to replicate the euro experience because Europe had sorted out the question of hegemony long before the question of a single currency was mooted. The ideal preconditions that existed in Europe prior to the introduction of the euro either don't exist in Asia or are only emerging. There were several factors that bound the European nations together. They included high trade interdependencies, Common acceptance of basic political and social values, fairly even economic development and comparable living standards. Even with common objectives, it took half a century for Europe to achieve a single currency.
There are a few such binding factors among Asian countries.However, conditions for a common Asian currency are improving. The past few years have witnessed higher trade interdependencies in East Asia than ever before. Trade volume among the ASEAN countries has swelled. Trade between India and China increased manifold over the past few years. foreign remittances from Japan and Singapore are on the rise.
But efforts towards a common currency have to be preceded by a common single market. ASEAN has already initiated steps toward evolving a mechanism for exchange-rate stability for promoting financial stability in Asia. More steps remain to be taken toward creation of a unified currency structure in Asia.
The benefits of an eventual single currency are numerous. It will increase market transparency by making prices more easily comparable. Cross-border transactions will also become more attractive as market operators will no longer be exposed to exchange-rate risks, and costs associated with currency conversion will be eliminated.
Moreover, single currency will go a long way in promoting political union in Asia. But it will be a long-drawn-out process. Europe has worked towards political and economic integration for over 50 years before the birth of a single European currency in 2001
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