ASEAN single currencies: Never mind the differences

COPYING AND DISTRIBUTING ARE PROHIBITED WITHOUT PERMISSION OF THE PUBLISHER: CHUNT@EUROMONEY.COM

By:
Published on:

Nothing surprises crisis-hardened Desmond Supple any more, but even he was left slightly baffled by Malaysia's bid to resurrect talk of a single south-east Asian currency. Supple, head of research at Barclays Capital in Singapore, deftly reeled off reasons why, in his opinion, such a concept would not work, at least for the foreseeable future. Variations in development levels between the countries and differences in business cycles are top of Supple's list.

Despite the obvious barriers, Malaysia's national economic action council, part of the prime minister's office, has announced that a study into an Asean (Association of South East Asian Nations) currency is to be carried out. The country's national economic recovery plan called for a study into the "feasibility and pre-requisites" of such a currency. "This would have to be examined within the context of intra-Asean trade as well as trade between Asean and other trading partners," said the council.

Only marginally more surprising than the concept of a single currency itself, was the news that it was the IMF which would be conducting the research, at Malaysia's request. The central bank said it had requested technical assistance from the IMF, which would be conducting the study, due to be completed in October. The results would be used as a concept working paper on adoption of a common currency, added Bank Negara.

"It is one of those issues which is going to keep on cropping up in the coming years without any movement towards it," reckons Supple. While he welcomes any move towards closer economic integration in terms of freer trade and currencies, he thinks it unlikely that matters would move beyond that into a single currency. Business cycles in each Asean member country are at different stages, he argues, adding that a single currency would require common monetary policy trends.

"They are not going to be at that level for a long time," he says. Countries are also at different levels of development. Supple does not dismiss the talk out of hand, however, hoping it is part of a "broader dialogue" and adding that using discussions of a currency as a conduit for increasing market size and economic interlinkage is "laudable". However, he warns that if matters were taken beyond that to an actual single currency it could undermine the closer trade and economic ties it was designed to encourage.

Ng Chow Soon, head of international relations at Bank Negara, admits a single currency is a long-term project. "Bear in mind it took Europe 50 years," he says. The idea was initiated by central bankers from Asean, and the IMF is being asked to come up with a concept paper for further discussion. Other central banks in the region seemed quite supportive of the idea, he adds. "It would be a logical step in terms of forging closer financial and economic ties in Asean," he says, but adds the proviso: "Don't expect miracles."

Singapore is less enthusiastic about the idea of a common currency, however. In a recent speech, the Monetary Authority of Singapore's assistant managing director for capital markets Yeo Lian Sim spoke of the potential for growing Asian bond markets and drew parallels with the European markets. "Even after conversion to the single currency, European bond markets are by no means homogeneous. Individual countries retain some unique practices though a degree of standardization has occurred.

"Efforts to harmonize market conventions and re-denominate debt will foster a bigger, deeper and still more liquid market," she said. "In Asia, the presence of several developing bond markets from Korea to Indonesia provides the potential to mobilize capital inflows. As in Europe, there is room for high-yield bonds, but also for low-yield higher credit paper. Although a common currency would hasten convergence, there is no prospective common currency, nor am I advocating one."

In Thailand, a senior central bank official admitted a common currency was not "top of the agenda" and the Bank of Thailand had no formal position on the subject. "It has taken Europe 50 years to achieve a single currency and it has not been proved yet that it is going to be successful in promoting growth in Europe. We in Asean still have a long way to go in terms of economic integration and convergence. The stages of development are very different among countries," he says, citing Burma and Laos versus Singapore.

"The idea is a little bit far-fetched, although some countries may want to explore this concept, but I do not think it is a practical idea at the moment. There are still a lot of issues to tackle urgently rather than thinking about this rather academic exercise," he adds. Still, the Bangkok Post has been speculating on names for the new currency. So far the crony, the krup, the anwar or the US dollar are favourites. Gill Baker