Do Regional Currencies Mean Change?

May 14, 2008 03:08 PM
by Anne Szustek
Nine years after the euro was first introduced, economists debate the viability of pan-regional currencies in other parts of the world.

30-Second Summary

Columbia University economist Robert Mundell, considered the “father of the euro,” believes a regional Asian currency could work—“if it could be arranged properly, and that would take agreement between Japan and China.”

The 33 percent depreciation of the Chinese renminbi versus the U.S. dollar in 1994 and the Japanese yen’s three-year decline from 1995 to 1998 played heavily into the Asian financial crisis of the late 1990s.

A shock to either of those two currencies could devastate smaller Asian markets such as Malaysia or Indonesia. This is one of the reasons that China, Japan, South Korean and ASEAN—an association of 10 Southeast Asian countries—are considering the “Asian currency unit” as a way to restrain inflation, eliminate Forex costs and make those countries more resistant to external currency shocks.

Not quite a currency in and of itself, but rather a basket of weighted national monetary units, the ACU, says Asian Development Bank adviser Alfred Steinherr would help Asia “cooperate within Asia and become less dependent on … multilateral institutions.”

One obstacle for the ACU is the member countries’ wildly disparate rates of economic growth.

Similar concerns cloud the scheduled 2010 implementation of the khaleeji, a currency that would comprise most of the oil economies of the Persian Gulf. “Saudi Arabia’s inflation rate was only 2.3 per cent in 2006 while Qatar’s was 9.2 per cent,” writes Gulf News.

Keeping inflation low was the main premise behind the “amero,” a theoretical North American currency designed by the Fraser Institute, a Canadian think tank. The amero was never seriously considered by any government, but trepidation over the prospect of a North American Union evolved into a stumping point for Republican presidential candidate Ron Paul.

Headline Link: ‘Euro Pioneer Ponders Pan-Asian Currency’

Background: Planned and theoretical regional monetary units

The Asian currency unit
The khaleeji
The amero

Reference: Investing guide

Related Topics: The dollar and international currency reserves


Most Recent Beyond The Headlines