Working Paper: CEPR ID: DP2411
Authors: Tamim Bayoumi; Barry Eichengreen; Paolo Mauro
Abstract: This paper analyses the extent to which ASEAN may be suitable for a regional monetary arrangement. On the economic front, we review evidence on patterns of trade, economic shocks, the extent of factor mobility, and the monetary transmission mechanism. We find that ASEAN today is less suitable for a regional monetary arrangement than the euro area was before the Maastricht Treaty, but the differences are not large. On the political front, we analyse the prerequisites for monetary integration in light of 50 years of European experience. We conclude that a firm political commitment would be the key to ensuring that an attempt to form a regional monetary arrangement is not viewed as simply another fixed exchange rate system open to speculative attack. That commitment would have to be strong enough to survive for an extended period and to support difficult decisions such as rendering the central bank independent, adhering to fiscal and exchange rate arrangements even if the policy stance conflicts with that which would be adopted on the basis of purely domestic considerations, and accepting supranational directives. These are very considerable prerequisites for success.
Keywords: Optimum Currency Areas; ASEAN; Single Currency
JEL Codes: F33; F36
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Political commitment (D70) | Successful regional monetary arrangement in ASEAN (F33) |
| Lack of political commitment (P26) | Fragile regional monetary arrangement in ASEAN (F33) |
| Economic shocks and trade patterns (F69) | Suitability for regional monetary arrangement in ASEAN (F36) |
| Faster speed of adjustment in ASEAN economies (F15) | Flexibility of labor markets (F66) |
| Lack of commitment to render central banks independent (E58) | Barriers to monetary integration in ASEAN (F36) |