Formation of a Monetary Union among Asean+3

Following the successful establishment of the European Union (EU) in 1993, questions have been raised to whether we should have a monetary union in East Asia. Are we ready to form such regional integration? In Europe, they have previously used a set of convergence criteria, known as the Maastricht Convergence Criteria, as a benchmark to measure a candidate country’s competency prior to joining the EU. The criteria set involves inflation rate, interest rate, exchange rate, deficit/GDP ratio and debt/GDP ratio. Therefore, by applying the same set of criteria to our East Asian economies, this study hopes to find some evidence supporting the readiness of our economies to form a monetary union. This study also offers empirical analysis that examines whether these criteria are statistically significant to serve as a benchmark in measuring the performance of individual country. Eight countries from the ASEAN+3 cooperation are chosen to represent the East Asian region. They are China, Indonesia, Japan, Korea, Malaysia, Philippines, Singapore and Thailand. Firstly, each criterion is tested individually for every country to determine which criterion is statistically significant in measuring the country’s economic growth. Secondly, the criteria set is examined against each country to see if it is capable of measuring the general performance of the economy. Results from both examinations reveal that there is little statistical support to the significance of the criteria set applied to the selected ASEAN+3 countries and only certain criteria are statistically significant individually, with results varying from one country to another. Even the coefficient signs differ from the European case, in which all coefficients are expected to be negative. This shows that in contrast to Europe, certain criteria have the inverse relationship with economic growth in the Asian region. In conclusion, this study offers evidence that by the standard of the Maastricht Convergence Criteria, ASEAN+3 is not yet ready to form a monetary union.

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