This report provides a comprehensive analysis of the potential adoption of a common currency by the Association of Southeast Asian Nations (ASEAN). It begins by discussing the benefits of a common currency, such as reduced transaction costs and increased trade and investment, drawing parallels to the European Union's experience. The report then delves into the preconditions for successful currency union, including national convergence, open capital markets, and wage and price flexibility, while acknowledging the differences between ASEAN and Western Europe. The core of the report assesses the costs and benefits of ASEAN adopting a common currency, considering factors like factor mobility, price and wage flexibility, trade intensity, and shock symmetry. It highlights the suitability of ASEAN for a common currency based on optimal currency area criteria, including trade composition and geographical diversification. The report also addresses the constraints on common currency adoption, such as economic diversity, political preconditions, financial sector weaknesses, and the need for institutional mechanisms. It concludes by emphasizing the need for political commitment and a strategic approach to economic integration, recognizing the potential for greater monetary cooperation and the importance of learning from past experiences. The report underscores the potential for ASEAN countries to benefit from a common currency if the challenges are addressed effectively.
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