THE ROLE OF ASEAN EXCHANGE RATE UNIT (AERU) FOR ASEAN-5 MONETARY INTEGRATION: AN OPTIMUM CURRENCY AREA CRITERIA
Abstract
The idea for regional monetary integration is grounded by the process of convergence theory within the member states. The paper analyses the possibility of monetary union in ASEAN-5 countries, Indonesia, Malaysia, Philippines, Thailand, and Singapore. In terms of volatility, by using nominal deviation indicator assessment, the ASEAN-5 currencies are suggested to peg their national currencies into Yuan since it empirically brings the lowest level of volatility, both during normal and crisis periods. Therefore, Yuan could be proposed as the anchor currency for ASEAN-5 countries. Moreover, valuing the AERU in terms of a weighed average of Yuan is important to determine which countries are considered to be an Optimum Currency Area (OCA). The results statistically suggest that all ASEAN-5 countries could be grouped as OCA according to exchange rate stability criterion.
Keywords : Optimum Currency Area, AERU, ASEAN-5, Exchange Rate Stability
JEL Classification : D81, E52, F15, F36
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References
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Achsani, Noer Azam, and Titis P., 2010, Testing the Feasibility of ASEAN+3 Single Currency Comparing Optimum Currency Area and Clustering Approach. Euro Journals Publishing, Inc Issue 37
Agarwal, Aman, Penm, and Wong, 2004, ASEAN DOLLAR: A common Currency Establishment for Stronger Economic Growth of ASEAN Region. Paper presented at the International Conference on Business, Banking, and Finance: Trinidad and Tobago
Azali, Wong, et.al. 2007, The ASEAN-5 Future Currency: Maastricht Criteria, MPRA Paper No. 10272
Bayoumi and Mauro, 2000, On Regional Monetary Arrangements for ASEAN. Journal of Japanese and International Economics 14, 121-148
Eichengreen, Barry, 2006, Global Imbalances: The Blind men and The Elephant. Brookings Policy Brief 1 (January)
Falianty, Telisa Aulia, 2006, Feasibility of Forming Currency Union in ASEAN-5 Countries. Research Laboratory University of Indonesia: Indonesia
Farrel J., Saloner G., 1986, Installed Base and Compatibility: Innovation, Product Preannouncements, and Predation. American Economic Review;76;940-955
Frankel, Jeffrey, 1999, No Single Currency Regime is right for all countries or at all times. Working paper NBER WP No. 7338.
Frankel and Rose, 1998, The Endogeneity of the Optimum Currency Area Criteria. Economic Journal, Royal Economic Society, Vol.108 (449), pages 1009-25, July
Frankel and Wei, 1994, APEC and other regional economic arrangement in the Pacific. Pacific Basin Working Paper Series 94-04, Federal Reserve bank of San Francisco.
Gross and Thygesen, 1998, European Monetary Integration, from the European Monetary System to Economic and Monetary Union. Harlow Essex/New York, Longman.
Ito, Takatoshi, 2006, On Determinants of the Yen Weigh in the Implicit Basket System in East Asia. RIETI Discussion Paper Series 06-E-020
Katz M.L, Shapiro C., 1985, Network Externality, Competition, and Comparability. American Economic Review; 75; 424-440
Krugman P., 1980, Vehicle Currencies and the Structure of International Exchange. Journal of money, credit, and banking;12 (3); 513-526
Kuroda and Kawai, 2002, Strengthening Regional Financial Cooperation. Pacific Economic Papers 322, pp. 21-35.
Kusuma, Dimas Bagus, and Arief D.P., 2010, Analysis of Implementation Optimum Currency Area and Its Volatility: Case Study ASEAN-5+3. Bulletin of Monetary Economics and Banking Vol. 13, No. 2
McAleer, M.J. and Nam, J.C.W, 2005, Testing for Cointegration in ASEAN Exchange Rates. Mathematics and Computers in Simulation, 68: pp. 519-527
Moon, et al., 2006, Regional Currency Unit in Asia: Property and Perspective. KIEP Working Paper, 06-03.
Mundell, 1961, ” A theory of Optimum Currency Areas”, American Economic Review, Vol. 51, p657-665
Ogawa, Eiji, 2006, Adopting a common currency basket arrangement into the “ASEAN plus three”. RIETI Discussion paper series 06-E-028
Ogawa, Eiji, and Junko Shimizu, 2006, “A Deviation Measurement for Coordinated Exchange Rate Policies in East Asia,” RIETI Discussion paper 2006/01 06-E-002
Ogawa and Ito, 2002, On the Desirability of a regional basket currency arrangement.Journal of the Japanese and International Economies 16:317-34.
Ogawa and Shimizu, 2005a, A deviation measurement for coordinated policies in East Asia. RIETI Discussion Paper Series, 05-E-017.
Ogawa and Shimizu, 2005b, Risk Properties of AMU Denominated Asian Bond. Journal of Asian Economics, Vol. 16, issue 4, 590-611
Ogawa and Yoshimi, 2008, Widening Deviation Among East Asian Currencies. RIETI Discussion paper series 08-E-90.
Swoboda A., 1968, The Euro-Dollar Market: An Interpretation. Essays in International Finance; p.64
Warjiyo, Perry, 2004, Materi Kuliah Ekonomi Keuangan Internasional. Post-Graduate Program, Economic Science, University of Indonesia
Watanabe and Ogura, 2006, How Far a Part are two ACUs from each other?: Asian Currency Unit and Asian Currency Union. Bank of Japan Working Paper Series
Williamson, John, 2005, A currency Basket for East Asia, not Just China. Institute for International Economics, No. PB05-1
Yuen, Hazel, 1999, Globalization and Single Currency the Prospects of Monetary Integration in East Asia. Paper prepared for conference on ”The Challenges of globalization”, Bangkok.
Published
2013-03-28
How to Cite
Kusuma, D. B., Ashif, S., Harahap, A. M., & Omarsyah, M. (2013). THE ROLE OF ASEAN EXCHANGE RATE UNIT (AERU) FOR ASEAN-5 MONETARY INTEGRATION: AN OPTIMUM CURRENCY AREA CRITERIA. Buletin Ekonomi Moneter Dan Perbankan, 15(3), 55-82. https://doi.org/10.21098/bemp.v15i3.427
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Buletin Ekonomi Moneter dan Perbankan / Bulletin of Monetary Economics and Banking is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.
