There is strength in unity as the Euro, the common currency of the Eurozone, has demonstrated in its two-decade existence. In this span of time, the European Union (EU) trade block has grown to become the world’s second largest economy, overtaking the USA, although being leap-frogged by China. In 2018, the EU pulled together to contribute 16% (US$ 22 trillion) of the world’s total GDP, despite deep-seated systemic challenges. China’s output, made up 19% at US$ 25.3 trillion, while former leaders, the USA, had a share of just over 15% at US$ 20.5 trillion. This ranking is expected to persist for the next few years, according to the International Monetary Fund’s (IMF) year-on-year projections up to 2023. Its resilience was further tested during the 2009- 2012 European debt crisis when the union avoided national bankruptcy and government collapse of the scale that Iceland experienced.
The notion of a united European polity was neither a new nor a novel idea and had been pursued from time to time since the fall of Rome but not since those days of antiquity has the region recognised a common currency. The main thrust of the argument is simple. Aside from forging closer relations and cooperation between the member states, a common currency would increase efficiency, improve market access and lower costs. Doing away with numerous currencies eliminates price uncertainty since there is no more fluctuating exchange rates and associated fees to contend with. This in turn promotes competitiveness and increases efficiency as companies are compelled to innovate in an environment of transparent prices. People as well as business benefit from price transparency as they can easily make price comparisons between different vendors. Along with these benefits, the intra regional business environment is simplified, thus attracting more inward investment across the Eurozone.
Given time, it is thought that there would be a convergence in the economic performance of the EU member countries instead of a realisation of the fears that several economically stronger countries would perpetually be supporting underperforming ones – bringing about mutual prosperity.
The EU zone experiment is far from perfect and still a work in progress but it is undeniable that laudable gains have been made, or enough gains for world leaders to take notice and contemplate upon. The Association of Southeast Asian Nations (ASEAN) is one such grouping of culturally similar countries that could potentially benefit from a similar currency structure. The idea has been mooted several times in the past, even getting as far as a feasibility study conducted by the International Monetary Fund (IMF) at the behest of key personnel at Bank Negara.
A good place to start research into whether ASEAN can profit from a common currency is by looking at precedence. In this regard, we have two; the abandoned shared currency between Singapore, Malaysia and Brunei prior to 1967 and currency interchangeability agreements amongst the same countries post 1967. Although all were eventually rescinded, the currency interchangeability agreement between Brunei and Singapore still stands.
It should not be lost on anyone that back then, if less so now, the three countries were very similar in terms of political and economic stability, inflation rate and had been part of the same administration under the British. That brings us to a crucial requirement in establishing a single currency bloc – similarity. When the Euro was officially adopted throughout the EU in the mid-nineties, the groundwork was already half a century in the making. It, alone took a decade to prepare the EU member countries for monetary union, costing billions of dollars to equalise the economies of Belgium, Luxembourg, France, Germany, Italy and the Netherlands. If one were to compare the ASEAN countries at the extremities of a scale measuring GDP, inflation and interest rates, it would show a wider chasm of disparity than any existing in the EU.
The UK’s Brexit can also serve as a cautionary lesson for an ASEAN pondering a unified working structure. Based on polls, the top reason given by those voting to leave the EU was due to the loss of sovereignty to the European Commission, located in Brussels. Similarly, if a common currency was to be adopted there would have to be in place an entity acting as a central bank, from which policy would be dictated.
Whereas the members of the EU were prepared to relinquish some independence, ASEAN leaders have voiced out no similar willingness to allow national monetary and fiscal policies to be directed by an outside entity. It would seem an even more unlikely proposition considering that the countries of Southeast Asia have been riven by cultural differences and history, only to be further compounded by the yolk of colonialism. Nationlistic sentiment nurtured since the post war years will not be easily relinquished.
Perhaps an even more pertinent point to consider is the nature of each country’s GDP. Ranging from financial services to agriculture to energy, their economic cycles will unlikely to be in tandem, making it more challenging for any coordinated financial policy to be implemented, until synchronisation is achieved.
As it stands, right now, a unified pan-ASEAN currency is unlikely to befeasible. A lack of political, historical, cultural as well as economic motivation, ensures that any proposals scarcely even make it past the realm of academic study. In the longer term, it may still be a distinct possibility. As with the early stages of European cooperation, ASEAN member countries already operate a number of trade agreements. Recent initiatives such as the AEC and the Financial Integration Roadmap further establishes the commitment of an EU-style community. Another factor to consider is China. It’s growing involvement in the region with economic and infrastructure projects like the The Belt and Road has made strides in bringing the region together. However, China’s engagement has primarily been with individual countries and less of a regional master plan. ASEAN may find that in time it has to band together to a counter weight to it’s growing influence. Perhaps those confluence of factors would finally provide the will for such an ambitious undertaking.