Conditions not right for Asean currency union

The flags of the 10 Asean member countries at the Shangri-la hotel.
The flags of the 10 Asean member countries at the Shangri-la hotel.PHOTO: ST FILE

Europe correspondent Jonathan Eyal rightly pointed out that Asean, which had toyed with the idea of a currency union, should pick up lessons from the euro crisis ("Dented, but euro still holds currency"; Monday).

When considering an Asean currency union, the first question to ask is whether it will benefit Singapore.

While it may help to lower transaction cost, reduce exchange risk, maintain price stability and, possibly, enhance Asean's standing as a single major currency, I do not see advantages for Singapore.

A single currency will restrict our national sovereignty and policymaking decisions, because we will have less control over our fiscal and monetary policies.

To enter such a currency union, Singapore will have to give up its power of monetary policy. It must accept the interest rates set by the Asean central bank. This will hurt our business cycle.

Furthermore, there are big differences among Asean countries.

In terms of the economy, the various countries are at different levels of development.

Some countries focus more on services and manufacturing, while others rely on raw materials. Singapore has been moving from labour-intensive industries to a value-added economy.

Not all Asean countries are strong in macroeconomic policies. If any member economy is weak, it will drag down Singapore.

The political systems of Asean members are varied, ranging from communist to democratic countries, as well as monarchies.

There are different Constitutions, which are based on centuries of history and culture, and are difficult to change.

Asean also lacks important institutions to manage monetary and fiscal policies.

Given all these challenges, Asean still has a long way to go before conditions are optimal for it to become a single currency area.

Francis Cheng

A version of this article appeared in the print edition of The Straits Times on July 17, 2015, with the headline 'Conditions not right for Asean currency union'. Print Edition | Subscribe