Saturday, August 07, 2010

Economic Integration - Optimum Currency Area and ASEAN

According to Carbaugh (2009), optimum currency area is a region in which it would be more preferable economically to have a single official currency instead of multiple official currencies. For example, Malaysia can be considered an optimal currency area. Malaysia consists of 13 states: 11 states in the peninsula of Malaysia and two states on the northern part of Borneo states. It would be inconceivable that the current volume of commerce among its 13 states would occur efficiently in a monetary environment of 13 different currencies. (Malaysia Tourism 2010)

The gains of an optimum currency area would be more uniform prices, lower transaction costs with greater certainty for investors and enhanced competition. Having a common currency area eliminates the risks associated with exchange fluctuations as cost of currency are lessened, resulting in more uniform prices (e.g. predictability of exchange rates) and lower transaction costs. Also, with a common currency area, “the economies are insulated from monetary disturbances and speculation, and political pressures for trade protection are reduced... Read more>>

No comments:

Post a Comment