A United Currency: Is it time for a wake-up call?

If the Euro provides currency stability within the European Union, then why doesn’t Asia employ the same mechanism? With Donald Trump’s attack on the federal reserves weakening the value of the US dollar, Asian governments holding onto the US dollars will be surely threatened. The dollar depreciation drives down foreign direct investment due to greater speculation, leaving ASEAN economically vulnerable and harming emerging markets. Similarly, withholding a falling currency will affect consumer spending, as their money diminishes in value. With the US dollar holding nearly two-thirds of the foreign exchange reserves in ASEAN, it is now time for South East Asia to move on and take control of the regional ties and resources located within its territory by creating a united ASEAN currency.

The idea had previously been conceptualized in 1997, in which there was a lack of support among ASEAN members. However, during a recent United Nations conference this year, the idea of a single currency to represent ASEAN countries was once again pitched by Mahathir Mohamad, who said that “no single currency should dominate the world.” With the US dollar weakening in value, it was optimal timing. The implementation of a single “Euro-like” currency will create greater financial equity between states, remove speculation of foreign currency shocks and strengthen trade. The idea of this currency has already been deemed durable by the IMF, who believe that the monetary union will usher in higher exports and global investors.

Reason 1

Take Portugal, for example. In 1974, Portugal had been plagued with negative economic growth due to its recovery from the Carnation Revolution, which led to mass capital flight. However, after it joined the European Monetary Union in 1986, its purchasing power parity rose 51% from 1974 and after launching the Euro garnered productive MNC’s and investment within its borders. Similar to Portugal, there will be benefits towards slower developing economies, such as in CLMV countries (Cambodia, Laos, Myanmar, and Vietnam) with the implementation of the ASEAN currency. The creation of an ASEAN currency will aid bridge the gap in economic development and homogenize trade transactions. Furthermore, with a unified currency, not only will economies benefit, but also individuals as well. The strength of the ASEAN currency will foster great consumer spending and choice. It can also provide greater employment opportunity, a free flow of skilled labor and job mobility, similar to the benefits Portugal endured in the Eurozone. With a GDP of $2.3 trillion, ASEAN countries already have the funds to make this happen.

Reason 2

Another incentive for the creation of a united currency is greater macroeconomic stability within each country, thus fostering greater intra-ASEAN trade. Due to the recent weakening of the Indonesian currency, it has inflated to the point where $1 is worth 15,000, essentially creating a trade deficit and destabilizing the Indonesian economy. By implementing a single currency, Indonesia will be able to drive down inflation and focus on rebuilding the domestic economy, as well as investing in neighboring countries such as Singapore and Malaysia. ASEAN countries need to be more resilient on exporting goods and creating demand within member states, instead of being reliant on foreign investment. With Singapore and Malaysia being capital giants and Indonesia and Myanmar holding resources of palm oil and gas, the currency will only encourage freer trade within states holding different comparative advantages. The single currency will foster competition within countries and persuade them to move past exporting commodity goods. Although some argue countries like Indonesia will lose monetary control to devalue their currencies, the ASEAN currency will help increase currency confidence and foreign demand. Nations will flock to invest in ASEAN, instead of ASEAN countries being reliant of international demand.

However, to enact these policies and equalize the economic development of the different ASEAN countries, the respective governments must solve current account deficits. The government needs to promote domestic economies by stimulating the growth of SME’s. Currently, many SME’s are unable to grow due to the lack of information of international markets and financial constraints to fund the research, education, and development of SME’s, governments must exercise fiscal policies such as the tax amnesty system to lure unpaid taxes out of households in exchange for forgiveness. Each member state’s central banks can monitor the amnesty. This policy, in particular, is currently in effect in Indonesia, who has garnered 560 trillion rupiah to bolster spending on domestic infrastructure. Active communication channels must also be implemented through stringent reports to the governments of member states, to generate political legitimacy and greater transparency. The increased power of SME’s will stimulate ASEAN countries’ economies and homogenize their development, creating a platform for a stable currency.

Currently, the United States invests around 226 million in FDI within ASEAN, and for CLMV countries. The depreciation in currency led to greater external debt within states. To solve the foreign debt of ASEAN countries, in the long term, the power of SME’s and local industries will make ASEAN emerging markets more competitive. At this point, they can reduce their spending on imports and foreign direct investment. Furthermore, ASEAN governments should communicate with the ASEAN economic council, IMF and national banks to create structural adjustment programs to encourage greater employment and build infrastructure. Representatives like Jokowi, Lee Hsien Long and Mahathir Muhammed need to work in conjunction with the ASEAN economic council to initiate a stable environment for the currency to be implemented successfully. The strengthening of SME’s will only strengthen the attractiveness of the ASEAN currency.

ASEAN has moved past the era of the 1997 Asian Financial Crisis, massive trade deficits, and foreign debt. To create a united economy and macroeconomic stability, governments must, therefore, exercise strong fiscal policy and collaborate with the IMF to homogenize the Asian countries, gain political credibility and eventually lead to economic equality. It is time for ASEAN to step up and utilize their strong financial power to impact the world economy and challenge the US dollar.