Indonesian President Susilo Bambang Yudhoyono warned of the danger of a common currency in an interview with the Wall Street Journal. It is a reminder that needs not a resounding. The horror of Europe is enough to make one thinks twice of a currency union. The talks of Greek exit can potential become the end of the European dream.

The European crisis is a challenge to me partly because I am supportive of a currency union for Southeast Asia. Sometimes in the past, I contended to be associated with the term Aseanist.

More importantly, I am supportive of a currency union because of my free trade tendency: a union boosts trade because it reduces trade barrier significantly.

To be fair to myself, I support a union across similar economies and not wholly across the diverse Southeast Asia economies from the financially sophisticated Singapore to the tiny backwater East Timor.

Really, the lesson of Europe is not that monetary union does not work. The lesson is that monetary union works best for similar economies: the economic cycles mostly coincide, the structures are about the same, the culture of societies in it are not so different, etc.

I think I have made the case for a currency union for Malaysia, Singapore and Brunei for a start. In fact, Singapore and Brunei are already on a currency board, which effectively means de facto currency union. Malaysia is the natural extension of the Brunei-Singapore union because of its proximity and the massive interlinking between the three economies.

Then, there is perhaps historical hangover on my part, given how the original Malaysian proposal was a 15-state federation, with both Brunei and Singapore in it. Indeed, prior to 1973, all three currencies were interchangeable freely. Even before that between 1953 and 1967, all three countries used the same currency.

One issue with the Malaysia-Singapore-Brunei currency union is that the Singaporean economy tends to be more volatile than Malaysia. Nevertheless, I think in many ways, the direction of both economies are more or less the same. In that sense, the challenge of a monetary authority is to be more flexible and responsive to a more dynamic economy.

4 Responses to “[2553] The lesson of Europe for Southeast Asia”

  1. on 30 May 2012 at 19:25 moo_t

    “monetary union works best for similar economies”? Without take into consideration of political driven monetary policies?

  2. on 08 Jun 2012 at 17:26 kata sayang

    It’s hard to suggest that EU has similar culture, especially in light of differences in spending habit, and work ethics. In order to overcome existing crisis, individual members of EU would have put aside self interest and work together, as illustrated in the two blog post mentioned below. Sincerely hope Malaysia-Singapore-Brunei do the same for each other during tough times. But, in light of recent development of right wing agenda of ‘Ketuanan Melayu’, I doubt Malaysia has the political will to stomach such a union, as it hardly could hold onto even a ‘1Malaysia’ reality. se-endgame/

    The rules of the game [is] do not optimize the global result.
    What EU needs to do to overcome crisis.. can they do it? Can we do the same for each other, if there is a pact between Singapore, Malaysia and Brunei?

    -Merkel backs away from pure austerity to a balance of austerity and pro-growth policies.
    -Germany accepts higher wage/consumer inflation so as to increase the relative competitiveness of weak peripherals.
    -Euro bonds are approved by a means of joint Euro zone financing, including joint liability of Euro zone countries.
    -The EFSF/ESM provide funds directly for bank recapitalizations.
    -ESM is granted a bank charter and gets unlimited access to ECB liquidity.
    -A U.S.-like FDIC program is introduced for Euro zone bank deposits.
    -The ECB cuts its target rate by 25 to 50 basis points in June or July and reintroduces the Security Markets Program.
    -Greek elections on June 17 bring a pro Troika coalition.
    -Labor reform begins.
    -There is increased fiscal integration including heightened monitoring of eurozone deficits, spending, and movement toward tax harmonization.

    Steve Einhorn, vice chairman of Omega Advisors

  3. on 12 Jun 2012 at 10:19 Hafiz Noor Shams

    I didn’t suggest Europe had similar cultures across the Eurozone. On the contrary, I wrote the lesson of monetary union is the requirement for large similarities.

    The fact that Eurozone countries are dissimilar is the cause of ongoing troubles is the lesson. The corresponding lesson is the requirement for similarity.

  4. on 14 Jun 2012 at 14:30 Zareth

    Hey Hafiz, maybe you’ll like to contribute to the SEA Youth Say So website:

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