Abstract
This paper examines the feasibility of the proposal to establish a currency union in the East Asia. In this paper East Asia is composed of ASEAN countries like Brunei Darussalam, Cambodia, Indonesia, Lao PDR, Malaysia, Myanmar, Philippines, Singapore, Thailand and Viet Nam, plus three countries – Japan, China and South Korea. The test for feasibility, the study used Mundell’s concept of factor mobility, Kenen’s trade openness and McKinnon’s product diversification. Results indicate that within East Asian countries, intra labor mobility is immobile. Labor would rather move to European Union 6 countries and United States than stay within the region. Intra capital mobility, on the other hand, is slightly mobile. The average East Asian share of foreign direct investment to gross fixed capital formation is relatively higher compared to developed counties like United States, Germany and France. In terms of trade openness, the volume of trade is relatively higher within the region than the volume of trade in European Union 6 countries and United States. However, it is less symmetric. This means, some countries exports within the region but imports outside the region. Furthermore, there has been increasing diversification of trade within the region. There is even a rise of the share of parts and components in manufacturing. Hence, base on the given results, East Asia is not yet ready to form a currency union. DOI: 10.5901/mjss.2015.v6n2p415
Highlights
Currency Union defines as “either small client countries adopt the currency of a large anchor country or a group of countries creates a new currency and a new joint central bank” (Alesina et al, 2002)
Articles on currency union explain that benefits from currency union can be maximized as group achieves the bases of currency union, or criteria for Optimum Currency Area (OCA)
The average East Asian share of foreign direct investment to gross fixed capital formation is relatively higher compared to developed counties like United States, Germany and France
Summary
Currency Union defines as “either small client countries adopt the currency of a large anchor country or a group of countries creates a new currency and a new joint central bank” (Alesina et al, 2002). The benefits of the currency union to its members have been known for several decades. Many currency unions emerged as early as 4th century but European Monetary Union (EMU) is commonly used model of currency union in this contemporary time. The European Monetary Union illustrates the bitter sweet success and challenges of a currency union bring to country members. The literature, on the matter at hand, suggests that the Union is not an Optimum Currency Area, which is the reason for the rippling problem in the Union. Articles on currency union explain that benefits from currency union can be maximized as group achieves the bases of currency union, or criteria for Optimum Currency Area (OCA)
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