ASEAN Common Currency: Feasibility of Asian Monetary Integration

Background of ASEAN Common Currency Proposal

The discussion of a common currency in ASEAN (Association of Southeast Asian Nations) has been raised intermittently since the 1997 Asian Financial Crisis. In 2023, Malaysian Prime Minister Anwar Ibrahim revived the debate by proposing an "Asian Monetary Fund" and common currency.

History of the Discussion

Period	Proposal/Event	Outcome
1997	Asian Financial Crisis	Recognition of need for currency cooperation
1997	Asian Monetary Fund Proposal (Japan)	Blocked by US and IMF opposition
2000	Chiang Mai Initiative	Bilateral swap agreement network established
2010	Chiang Mai Initiative Multilateralization	$240 billion cooperation framework
2023	Malaysian PM Common Currency Proposal	Discussion revived, skepticism about feasibility

Why Common Currency is Discussed

Dollar Dependence Concerns: Risk of being swayed by US monetary policy
Intra-regional Trade Expansion: ASEAN intra-regional trade is ~25% of total
Transaction Cost Reduction: Eliminating FX fees and risks
Geopolitical Autonomy: "Third way" amid US-China conflict
Euro Success Model: Aspiration toward European integration model

Malaysian PM Anwar's Proposal

The 2023 proposal includes these elements:

Asian Monetary Fund: Regional financial safety net alternative to IMF
Local Currency Settlement: Expanding bilateral settlements without dollars
Common Currency Consideration: Monetary integration as long-term goal
Digital Currency: Payment system utilizing CBDCs

An ASEAN common currency is attractive as a political vision but has a large gap with economic and institutional reality. Even the euro faces many problems - it's clear ASEAN would face an even more difficult path.

Lessons from Euro Integration

The eurozone experience provides important lessons for ASEAN considering monetary integration.

Prerequisites for Euro Adoption

Euro adoption required convergence criteria under the Maastricht Treaty:

Criterion	Requirement	Purpose
Inflation Rate	Within 1.5% of best 3 countries average	Price stability assurance
Fiscal Deficit	Within 3% of GDP	Fiscal discipline maintenance
Government Debt	Within 60% of GDP	Sustainable fiscal policy
Exchange Rate	2 years ERM participation, no major devaluation	Currency stability confirmation
Long-term Interest Rate	Within 2% of best 3 countries average	Financial market convergence

Eurozone Successes and Failures

Successes

Eliminated FX risk promoting intra-regional trade
Low interest rates enabled infrastructure investment expansion
Deepened financial market integration
Established status as international currency

Challenges/Failures

Asymmetric Shocks: Difficulty responding to different economic cycles by country
Lack of Fiscal Transfers: Limits of monetary union without federal budget
Debt Crisis: Problems in Greece, Italy, Spain, etc.
Competitiveness Gap: Entrenchment of North-South divide
Democratic Deficit: Criticism of technocratic rule

Optimal Currency Area Theory

Economist Robert Mundell's optimal currency area theory shows conditions for successful monetary integration:

Condition	Eurozone	ASEAN
Labor Mobility	Moderate (language barriers)	Low
Capital Mobility	High	Moderate
Price/Wage Flexibility	Low	Moderate
Fiscal Transfer Mechanism	Limited (EU budget)	None
Business Cycle Synchronization	Moderate	Low
Economic Structure Similarity	Moderate	Low

Feasibility Analysis

We analyze ASEAN common currency feasibility from multiple perspectives.

Economic Condition Comparison

Country	GDP per Capita (USD)	Inflation Rate	Govt Debt/GDP
Singapore	65,000	4%	140%
Brunei	32,000	2%	3%
Malaysia	12,000	3%	65%
Thailand	7,000	2%	62%
Indonesia	4,500	4%	40%
Vietnam	4,000	3%	40%
Philippines	3,600	5%	60%
Laos	2,500	25%	90%
Cambodia	1,700	3%	35%
Myanmar	1,200	20%	Unknown

Major Obstacles

Economic Obstacles

Income Gap: Over 50x difference between Singapore and Myanmar
Economic Structure Differences: Mix of resource, manufacturing, and service economies
Inflation Rate Gap: High inflation in Laos and Myanmar
Financial Market Development: Extremely large gap between Singapore and others

Political Obstacles

Sovereignty Issue: Resistance to surrendering monetary policy sovereignty
Political System Differences: Mix of democracy, authoritarianism, military rule
ASEAN Way: Contradiction with non-interference principle
China/US Relations: Different diplomatic stances among members

Institutional Obstacles

Central Bank Integration: Need to create Asian Central Bank
Fiscal Integration: Absence of federal fiscal mechanism
Legal System Harmonization: Large legal differences between countries
Decision-making Mechanism: Limits of consensus approach

Feasibility Assessment

ASEAN common currency feasibility is extremely low at present. Economic convergence is insufficient and political will is lacking. Even the eurozone required over 50 years of preparation and still has problems. If ASEAN takes the same path, an even longer time would be needed.

Member Country Positions and Interests

ASEAN member country positions on a common currency vary significantly.

Country-by-Country Positions

Country	Position	Main Concerns/Interests
Singapore	Reluctant	Financial center status, independent monetary policy
Malaysia	Supportive	Breaking dollar dependence, regional leadership
Indonesia	Cautious	Wants leadership as largest but unprepared
Thailand	Neutral	1997 crisis memory, interest in currency stability
Vietnam	Reluctant	Maintaining exchange rate management flexibility
Philippines	Neutral	Concerns about impact on overseas remittances
Others	Varied	Small economic scale limits influence

Singapore's Special Position

Singapore is ASEAN's only developed country and cautious about a common currency:

Financial Center Status: Own currency is foundation of Asian financial hub
Exchange Rate Policy: MAS's unique managed float system
Economic Structure: Significantly different from other ASEAN countries
Concern: Risk of bearing less-developed countries' economic problems

Indonesia's Dilemma

Indonesia, accounting for about 40% of ASEAN's population and economy, is in a special position:

Leadership: Wants initiative as major power
Unpreparedness: Challenges in financial market development, inflation management
Sovereignty Concerns: Values independent monetary policy
Domestic Issues: Regional disparities, infrastructure development are priorities

Alternative Forms of Currency Cooperation

More realistic forms of cooperation than full monetary integration are being explored.

Local Currency Settlement (LCS) Expansion

Bilateral settlement frameworks without dollar intermediation are expanding:

Indonesia-Malaysia: Rupiah-Ringgit direct settlement
Thailand-Malaysia: Baht-Ringgit settlement
Indonesia-Thailand: Rupiah-Baht settlement
Effect: Reduced transaction costs, eased dollar dependence

Chiang Mai Initiative Strengthening

Element	Current Status	Enhancement Proposal
Fund Size	$240 billion	Expand to $500 billion
IMF Link	Up to 30% without IMF conditions	Raise to 50%+
Immediate Activation	Procedures take time	Automatic trigger mechanism
Surveillance Function	AMRO	Enhanced functions, expanded authority

CBDC Utilization

Efficiency in international settlements using digital currencies is being considered:

mBridge Project: CBDC experiment with Thailand, China, UAE, Hong Kong
Advantages: Real-time settlement, low cost, transparency
Challenges: Technical standard unification, privacy, regulatory harmonization
Potential: More realistic approach than common currency

Asian Currency Unit (ACU) Creation

A basket currency proposal like the ECU (European Currency Unit) before euro adoption:

Concept: Accounting unit from basket of major ASEAN currencies
Uses: Trade settlement, bond issuance, partial foreign reserves
Merit: Gradual step toward monetary integration
Challenge: Creating real demand, ensuring market liquidity

Investment Implications

ASEAN monetary integration discussions contain important implications for investors.

Short-term Impact (Minimal)

With common currency realization unlikely, short-term investment decision impact is limited:

Current exchange rate regimes maintained for now
Each currency's independent movements continue
No need for FX strategy changes

Medium to Long-term Considerations

Perspective	Impact	Response
Currency Diversification	ASEAN currency correlations may rise	Consider diversification outside region
Bond Investment	Local currency bond market development	Watch Asian bond funds
Equity Investment	Companies benefiting from regional integration	Financial, logistics, telecom sectors
Real Estate	Increased cross-border investment if integration progresses	Singapore, Malaysia REITs

ASEAN Currency Investment Approaches

Singapore Dollar: Regional safe haven, stability-focused
Thai Baht: Tourism/export-linked, moderate risk
Indonesian Rupiah: High yield, growth potential, high risk
Malaysian Ringgit: Resource/export-linked, moderate risk
Vietnamese Dong: Growth expectations, liquidity risk

If Monetary Integration Were Realized

Though extremely unlikely, considering the long-term possibility of monetary integration:

FX Risk: Disappears within region, remains with outside
Interest Rate Convergence: High-rate country rates decline, spread compression
Capital Flows: Intra-regional liberalization progresses
Winners: Lower-income countries (capital inflows), regional multinationals
Losers: Investors seeking high yields, Singapore financial sector

Future of Asian Monetary Integration

ASEAN common currency realization would require at least decades, even optimistically.

Staged Outlook

Period	Expected Progress	Certainty
2020s	Local currency settlement expansion, CBDC experiments	High
2030s	Asian Currency Unit creation consideration, financial regulation harmonization	Medium
2040s	Exchange rate mechanism (ERM-like system) introduction	Low
2050 onwards	Possible common currency introduction	Very Low

Necessary Conditions for Realization

Economic Convergence: Narrowing income and inflation rate gaps
Political Will: Agreement to partially transfer sovereignty
Institution Building: Asian Central Bank, fiscal transfer mechanism
External Environment: Stable US-China relations, dollar system changes
Euro Success: Proof that European integration is sustainable

Alternative Scenarios

Yuan Zone: Integration into Chinese economic sphere (politically difficult)
Yen Zone: Enhanced currency cooperation with Japan (depends on Japan's involvement)
Bifurcation: Separation between advanced ASEAN (Singapore, Malaysia, etc.) and latecomers
Status Quo: Only loose cooperation, monetary integration shelved

ASEAN common currency remains at the "dream" stage currently. However, the euro was also seen as unrealistic at first. From a long-term perspective, Asia's path to monetary integration has just begun, and the process itself has the effect of deepening regional economic and financial integration. Investors should focus on the deepening cooperation during this process rather than integration itself.

ASEAN common currency prospects must be considered extremely unlikely at present. However, this discussion is accelerating moves to deepen intra-regional financial cooperation and ease dollar dependence. Rather than assuming common currency realization, investors should focus on gradual changes like local currency settlement expansion, CBDC development, and financial market integration when considering approaches to ASEAN markets.