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How Far Apart Are Two ACUs from Each Other? : Asian Currency Unit and Asian Currency Union

Author

Listed:
  • Shingo Watanabe

    (Bank of Japan)

  • Masanobu Ogura

    (Bank of Japan)

Abstract
This paper examines the future evolution of the Asian currency arrangements from broader perspectives, including the optimal currency area theory and the experience with the European Currency Unit (ECU). Most academic literature on this topic concurs that the optimal currency area conditions seem to be met by subsets of Asian countries although the ultimate success of an Asian currency union hinges crucially on such factors as the historical and political backgrounds, robustness of institutional set-ups, degree of regional convergence in developmental stages, and track record of sound macroeconomic policy in constituent countries. It is also a valid concern whether the transition toward a currency union could be susceptible to speculative currency assault. The experience with the ECU suggests that a successful Asian currency unit requires preconditions including the firm political commitment, market-wide expectations of the eventual currency unification, and existence of well-functioning financial markets as well as cross-border payment/settlement systems. We can learn further from the fact that the ECU was handicapped by a lack of cash currency, which led to its limited use in commercial transactions, and inadequacies of settlement arrangements. The ECU as a divergence indicator was also rarely focused on, despite the fact that the exchange intervention thresholds were defined in relation to the ECU.

Suggested Citation

  • Shingo Watanabe & Masanobu Ogura, 2006. "How Far Apart Are Two ACUs from Each Other? : Asian Currency Unit and Asian Currency Union," Bank of Japan Working Paper Series 06-E-20, Bank of Japan.
    • Handle: RePEc:boj:bojwps:06-e-20
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    References listed on IDEAS

    as
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    Cited by:

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    2. Hwee Kwan Chow & Peter N. Kriz & Roberto S. Mariano & Augustine H. H. Tan, 2007. "Financial Liberalization and Monetary Policy Cooperation in East Asia1," Finance Working Papers 21916, East Asian Bureau of Economic Research.
    3. Kawai, Masahiro, 2015. "From the Chiang Mai Initiative to an Asian Monetary Fund," ADBI Working Papers 527, Asian Development Bank Institute.
    4. Jo-Hui Chen & Yen-Po Fang, 2011. "A study on the modified components of Asian Currency Unit: an application of the Artificial Neural Network," Quality & Quantity: International Journal of Methodology, Springer, vol. 45(2), pages 329-347, February.
    5. Hwee Kwan Chow & Peter Nicholas Kriz & Roberto S. Mariano & Augustine H H Tan, 2007. "Financial Liberalization and Monetary Policy Cooperation in East Asia," Working Papers 03-2007, Singapore Management University, School of Economics.
    6. Pavel Trunin & Sergey Narkevich, 2013. "Prospects for the Russian Ruble to Become Regional Reserve Currency," Working Papers 118, Gaidar Institute for Economic Policy, revised 2015.
    7. Thomas D. Willett & Orawan Permpoon & Lalana Srisorn, 2010. "Asian Monetary Cooperation: Perspectives From The Optimum Currency Area Analysis," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 55(01), pages 103-124.
    8. Woosik Moon & Yeongseop Rhee, 2012. "Asian Monetary Integration," Books, Edward Elgar Publishing, number 14191.
    9. Narkevich, Siarhei & Trunin, Pavel, 2013. "Prospects for the Russian Ruble as a Regional Reserve Currency," Published Papers dok2, Russian Presidential Academy of National Economy and Public Administration.
    10. Sergey Narkevich & Pavel Trunin, 2012. "Reserve Currencies: Factors of Evolution and their Role in the World Economy," Research Paper Series, Gaidar Institute for Economic Policy, issue 162P.
    11. Hwee Kwan Chow & Peter Nicholas Kriz & Roberto S. Mariano & Augustine H. H. Tan, 2010. "Monetary Policy Cooperation To Support Asian Economic Integration," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 55(01), pages 83-101.
    12. Victor Pontines & Ramkishen Rajan, 2008. "The Asian Currency Unit (ACU): exploring alternative currency weights," Macroeconomics and Finance in Emerging Market Economies, Taylor & Francis Journals, vol. 1(2), pages 269-278.
    13. Abhijit Sen Gupta & Amitendu Palit, 2008. "Feasibility of an Asian Currency Unit," Macroeconomics Working Papers 22164, East Asian Bureau of Economic Research.

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