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Is a common currency for member nations of ASEAN feasible? Matthew goes through some pertinent points:
Economic development
ASEAN countries have highly diverse economic development stages. According to the International Monetary Fund (2011) Singapore and Brunei, the richest countries in ASEAN, has a GDP (PPP) per capita of $59,936 and $49,517 respectively. In comparison, Myanmar’s GDP (PPP) per capita is a mere 2% of Singapore’s at $1,327. In fact, the sum of GDP (PPP) per capita of the other 8 countries namely, Malaysia, Indonesia, Thailand, Vietnam, Philippines, Laos, Cambodia, and Myanmar is less than Brunei, at $43,676.
This degree of diversity in income could make it near impossible to sustain a monetary union amongst ASEAN countries. Just like how the PIIGS of the European Union (EU) is causing the richer nations in the EU to pay for their fiscal incapabilities, the “less fiscally endowed” countries will cause Singapore and Brunei to pay for their debt in the event of an economic shock.
Economic structures and business cycles
The income differentials across countries within ASEAN also reflect the dissimilarities in the economic structures as well as business structures across countries. This could impede relative price movements and production outputs across the countries. Singapore and Brunei is probably at a peak-contraction transition phases, while countries like Malaysia, Indonesia, Thailand, the Philippines, and Vietnam are in the expansion phase of the business cycle. Myanmar, Laos, Cambodia are undergoing the trough-expansion transition phases.
The business cycle is affected by the forces of supply and demand. A country that is more exposed to the international market will thus be more affected by the global market. Civil unrest in countries like Laos and Cambodia in recent years have dissuaded investors from investing in them thus creates a void in economic growth, even a decade after the Asian financial crisis in 1997.
Stabilised transfer systems
Due to the differences in business cycles and income differentials, it has proven to be difficult to have a centralised banking system to make transfers of resources across countries. Fiscal irresponsibility also undermine the monetary cooperation of the members within the currency union as witnessed in the EU where Germany has been reluctant in bailing out PIIGS. Much reformation and restructuring in the financial sectors and government policies is required before a common currency could be adopted.
Legal, cultural, and linguistic barriers South East Asia is home to myriad cultural and linguistic differences. Unlike Singapore which promotes mutual respect and racial harmony, as well as having a common working language (English), the other ASEAN countries have been intolerant to other races and religions as can be seen in Indonesia and Malaysia to say the least. Political unrest also plagues countries like Laos, Cambodia, Myanmar, and Thailand.
It would be a high bar to reach for ASEAN nations to achieve cultural and religious tolerance. Most of the natives of the ASEAN countries also speak a different language across countries. A linguistic barrier would dampen the mobility of workers across countries. Hence, it would be hard for a Thai or Viet to find a job in an MNC in Singapore where the common language is English even if they may be highly skilled.
Yet, if the economic advantages of a regional monetary union are large, it is possible that countries may make political compromises so as to reap the economic benefits. Economic interests may persuade countries to set aside political differences and forge strategically beneficial political alliances. Economic and political integration in the region may span perhaps decades.
Though a common currency area seems improbable now, as the ASEAN nations become more developed, it may then be feasible to create a common currency area in ASEAN.
Related post:
Tea with Matthew Seah: Thoughts on having a regional common currency (Part 1).
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