Is There a Role for an Asian Currency Unit?

Abstract

While most observers concur that the time is not ripe for Asia to consider a common currency, there has been some discussion about the possible creation of an Asian Currency Unit (ACU).² This chapter examines the specific issue of the ACU which, in a general sense, is a weighted average of regional currencies a la the European Currency Unit (ECU) which was created in March 1979 under the European Monetary System (EMS) and remained in operation until the launch of the euro in January 1999.³ The remainder of the chapter is as follows. Section 11.2 provides a critical overview of and rationale for the ACU proposal. Section 11.3 offers an initial attempt at computing optimal currency compositions of the ACU based on the methodology developed by Hovanov, Kolari and Sokolov (2004). This methodology develops basket weights in the context of a minimized basket or portfolio of assets expressed in terms of national currencies. The final section offers a few concluding remarks.

This chapter draws on an article originally published in Macroeconomics and Finance in Emerging Market Economies, 1 (2), 2008, 21–39 (Taylor & Francis Ltd). Reprinted with permission.