On the threshold of currency conversion

William Pezek analyst "Bloomberg News"

Size does matter - something the economy of South-East Asia to understand as they try to compete in the global market. This explains why they now invite Japan, China and South Korea to their regional meetings.

If Asia is going to compete with the U.S. and Europe, it was logical to have a real economic impact, they must become more. Although the possibility of 10-member Association of South-East Asia are excellent, the involvement of the three largest economies of Asia makes it more appropriate.

Difficult not interested in a sudden desire to create an Asian free trade zone. Of course, it's a good thing. Asian countries and China last week agreed to reduce customs tariffs on goods in the total amount of $ 100 billion, paving the way for five years for the free trade zone, which can raise the standard of living for one-third of the world's population.

The problem is that such agreements are symbolic rather than substantial. Treaty of the Association of Asian countries with China, for example, exclude sensitive products such as steel, iron, automobiles and sugar. It also avoids the service sector and non-tariff barriers to trade. And you can rest assured that Japan will steadfastly protect its farmers when it would begin negotiations on free trade with Asian countries in April.

The real need
Trading Asian affairs compels us to ask whether there is indeed such a thing as free trade. What Asia really needs - is the model of economic integration such as the Euro-zone and even in the single currency. Unfortunately, at a meeting this week, Asian countries were virtually ignored these important issues.

"In an increasingly globalized environment is likely to be a great synchronization of business cycles," said Asian Development Bank President Tadao Chino. "Consequently, the benefits from the presence of fewer currencies to conduct international business, particularly at the regional level is likely to increase."

Regional currency would eliminate the circulation of the exchange rate, which hindered the growth and frighten investors. This could lead to greater integration, citing the cost of borrowing, monetary policies and inflationary pressures to a common denominator. And return on Treasury bonds would decline in the Asian region.

Europe has done so. Latin America spoke about this. Many of the Gulf States also wants to have its own common currency. Can Asia be far away from this movement?

Actually, yes. Azin agreed that the common currency would be "excellent opportunity" after a while, but did not so much for any progress in this direction.

A single Asian currency would put Asia in a better position to compete with the U.S. and Europe. The reasons why such a motion is a long way to go, because talking about the Asian economic unification seems more hypothetical speculations than reality.

Incommensurable parts
Events here in Vientiane in Laos, where Asian countries last week held its annual summit, stressed that the Asian economy and culture so as not commensurate with each other, how they are different in their development. Among the 10-member Association of Southeast Asian Nations is functioning electoral democracy and authoritarian regimes, the communist or military leaders. In Asia, a strong scattering of the living standards of rich Japan to impoverished Cambodia. An attempt to push economic trends to each other seems to many nightmare.

Asian countries also refuse to external control. A single Asian currency would mean the introduction, like Europe, the Stability and Growth Pact, requiring governments to live within our means. This will not be painless for the Philippines and other countries that suffer from chronic budget deficits.

Then, Asia would need a single central bank to conduct monetary policy for Brunei, Cambodia, China, Indonesia, Japan, Laos, Malaysia, Myanmar, Philippines, Singapore, South Korea, Thailand and Vietnam. Hardly, there is such a head the central bank, which is at least considered the possibility of such a decision, indeed, Gerkulesovoy problem?

When this is
Still, some analysts are optimistic. "It was said that more economic desire and political will - this is something that will ultimately facilitate the integration, just as it was in Europe," said former Philippine Minister of Finance Roberto de Ocampo, who now heads the Asian Institute of Management. "The number of the initiatives the Association of South-East Asia is proof of a sincere desire to move the region towards integration."

Compared with the problems faced by Asian economies, the experience of Europe will seem trivial. When, in 1992, was signed Maastrihskoe agreement, which imposed the Euro, Europe has not faced such a disparate mix of governments, economic conditions, underdeveloped financial markets and poverty. Some countries of the Association of South-East Asia still does not even have the bond market.

Asian leaders also may find obstacles in the past experiences. In the broadest sense, the Euro is an attempt to repeat what the U.S. did in the late 1800's. Only when the Fed printed "dollars" to finance the civil war, the U.S. received a single currency. Its adoption by the states, which until then issued their own currencies, making U.S. the largest economies in the world.

Bypassing bad weather
Europe, thankfully, has avoided disasters faced by the common currency in the past. Take the Latin Monetary Union in 1865, joined by Belgium, Bulgaria, France, Greece, Italy and Switzerland. It collapsed when the economic problems have spread to the region. Later, the Scandinavian Monetary Union in 1873 collapsed in 1924.

Asia wants to avoid such failures. This means that in the foreseeable future, the region is likely to remain far from a single currency. This is unfortunate, as the missed potential benefits. So, while Europe may not have to worry, its common currency, it is unlikely in the near future will see competition from Asia.

Forex Magazine
based on www.bloomberg.com