The possibility of an Asian monetary union drawing from the EMU experience

Abstract

This academic exercise evaluates the possibility of formation of a monetary union within East Asia, with the European Monetary Union (EMU) providing a referential framework against which lessons and comparisons are drawn. The benefits and drawbacks to Asia of adopting such a union are discussed, and their relative magnitude weighed against each other by employing the theory of the Optimum Currency Area (OCA). Although studies under the OCA framework have not yielded irrefutable or definitive results on the economic sustainability of an Asian monetary union, it is concurred that such a union is as economically viable as the EMU. The political sentiments towards monetary unification in East Asia are also examined, and though leaders remain generally unreceptive to such an undertaking, it is receiving serious consideration as cooperative monetary efforts accelerate and integrative initiatives deepen across Asia. Attention is also given to the existing monetary union between Singapore and Brunei (MUBS) as it commands relevance in our analysis due to its residence within Asia itself, and its smooth functioning despite economic disparities between its two members. A gradualist approach towards East Asian monetary unification, whereby smaller monetary unions are first formed to be eventually merged to make up an East Asian-wide monetary union is also discussed.