International Financial Markets Institutions

Running head: INTERNATIONAL FINANCIAL MARKET INSTITUTIONS
International financial market institutions
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INTERNATIONAL FINANCIAL MARKET INSTITUTIONS
Introduction:
The debate concerning the adoption of common currency by Association of South east
nations has emerged after the single currency for Europe begin a reality and in the aftermath of
Asian crisis. It is important to discuss some of the benefits that would come due to adaption of
common currency. Common currency can be depicted as common language that helps in
facilitating effective communication. Investment and trade among countries can be promoted
using common currency. One of the major benefits of common currency is that it helps in
facilitating investment and trade among the countries of union by reducing the cost transactions
in any cross border business (Almekinders et al., 2015).
Different currency cost environment would be a disincentive to commerce, trade and
investments accompanied with higher transactions cost. It will also help in removing exchange
rate volatility across the union. Some of the adverse effect of system of floating exchange rate
could be mitigated by common currency. A set of currencies should opt for currency currencies
from a purely economic point of view (Nelson, 2015). This should be done when if the benefits
of currency union mitigates the cost of losing national autonomy in monetary policy.
Discussion:
The process of ASEAN countries moving toward the adoption of common currency
would be likely similar to experience of European countries. Some of the striking features of
European Union includes using specific criteria for interest rates, inflation and fiscal policy, long
period for convergence of monetary aspects, partially harmonizing fiscal and financial system
and integration of capital and labour markets. Slow rate of evolution reflects late adoption of
currency and experimental nature of plan. One of the key component for running up to adopt
common currency and an important pre condition is national convergence. This would help in

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INTERNATIONAL FINANCIAL MARKET INSTITUTIONS
avoiding any macroeconomic instability arising from monetary policies and any movements in
competitiveness. In order to reap maximum benefits from adopting a common currency, the
central factor is open capital markets. This would enable countries to respond flexibly to any
asymmetric disturbances.
Some of the pre-conditions that can be achieved at various stages in the currency union of
ASEAN process might be including significant period. While achievement of preconditions, it
becomes essential to recognize the difference between ASEAN countries and Western Europe
situation.
Under the common currency, there will be increased promotion of openness and trade
among countries along with intra trade volume compared to floating exchange rate regimes. This
would make the intra trade union and degree of openness endogenous to the regime of exchange
rate. Secondly, under the credible currency union, the prices in the product market and degree of
flexibility of wages is greater compared to floating exchange rate regimes (Imf.org., 2017).
The cost and benefit associated with the adoption of common currency by ASEAN
countries is difficult to quantify. However, it has been ascertained by various characteristics of
ASEAN by applying the guidelines of literature of optimum currency area that in relation to cost,
benefits of common currency would be significant. Such countries have mixed track record of
monetary policies and it is unlikely that large costs will be involved in surrendering monetary
policy. One of the benefit can be explained resulting from convergence of best monetary
practices policy in region. It is certainly possible that some of the countries might not have
developed monetary policies or they do not have anything as such. Formation of currency union
would help such countries could benefit substantially keeping track by maintaining record
exchange rate management and inflation control (Bose et al., 2015). There would be more