Benefits, Costs, and Feasibility of a Monetary Union for the Association of Southeast Asian Nations (ASEAN)

The European Monetary Union’s struggle to survival has been a great case study as it provides valuable insights into the benefits and costs of adopting a monetary union. The benefits are numerous, including the elimination of foreign exchange uncertainty and transaction costs, the abolition of competitive devaluations, specialization in trade and finance, economies of scale, and reduction of borrowing costs. Meanwhile, the risk stemming from ceding the independent monetary authority also poses as a major challenge, with the surrender of central banks’ monetary authorities as a major criticism. While the debate is still heating, the Association of Southeast Asian Nations (ASEAN) is currently standing at a unique crossroad—to adopt or not to adopt a monetary union. Through quantitative and qualitative methods, the paper concludes that the ASEAN founders, including Thailand, Singapore, Indonesia, Malaysia and Philippines, are not yet ready to adopt a monetary union. This paper also suggests that, even though the ASEAN demonstrates many evidences of economic integration momentarily, the group as a whole needs to step up and more effective policies are necessary to make an ASEAN monetary union realistic. These policies must aim to increase labor and capital mobility as well as interregional trades among all countries. Besides, as a result of the European debt crisis, a fiscal union must also be taken into consideration should an ASEAN monetary union takes any formal forms of discussion in the near future.