Monetary Integration in South Asia: Possibilities and Challenges

Vol 10 , Issue 2 , July - December 2023 | Pages: 26-49 | Research Paper

Article has been added to the cart.View Cart (0)

https://doi.org/10.17492/jpi.focus.v10i2.1022302

Published Online: December 15, 2023

Author Details ( * ) denotes Corresponding author

1. * Vishal Sarin, Professor, Mittal School of Business, Lovely Professional University, Phagwara, Punjab, India (vishal.sarin09@gmail.com)

2. Fulwinder Pal Singh, Principal & Professor, Economics, Guru Nanak College, Batala, Amritsar, Punjab, India (fulwinderpalsingh@gmail.com)

The paper undertakes the structural VAR analysis to assess the suitability of a common currency in South Asia. The empirical result shows that the countries in the region face different structural shocks, hence the region is not an optimum currency area. The monetary integration in South Asia shall not be construed as one having a common currency. It would rather mean a greater role for the Indian Currency in the region. A sub-regional approach to achieving greater monetary integration would be instrumental in fostering greater economic integration in the region.

Keywords

SAARC; South Asia; OCA; Shocks; Economic Integration; Monetary Integration

Bayoumi, T. & Eichengreen, B. (1993). Shocking aspects of European Monetary Unification. In: Torres, F. and Giavazzi, F. (Eds.), Adjustment and Growth in the European Monetary Union (pp. 193-221). Cambridge University Press: Cambridge.
Bayoumi, T. (1992). The effects of the ERM on participating economies. IMF Staff Papers, 39(2), 330-356.
Bayoumi, T., & Eichengreen, B. (1994). ‘One money or many’ analyzing the prospects for monetary unification in various parts of the world. Princeton Studies in International Finance 78. Princeton, NJ: Princeton University International Finance Section.
Blanchard, O. J., & Quah, D. (1989). The dynamic effects of aggregate and supply disturbances. American Economic Review, 79(4), 655-673.
Fleming, J. M. (1971). On exchange rate unification. The Economic Journal, 81(323), 467-88.
Frankel, J. & Rose, A. K. (1998). The endogeneity of the optimum currency area criteria. Economic Journal, 108(449), 1009-1025.
Frankel, J. & Rose, A. K. (2002). An estimate of the effects of common currencies on trade and income. Quarterly Journal of Economics, 117(2), 437-66.
Ingram, J. C. (1962). Regional payments mechanisms: The case of Puerto Rico. North Carolina: University of North Carolina Press.
Kenen, P. & Meade, E. (2008). Regional Monetary Integration. New York: Cambridge University Press.
Kenen, P. (1969). The theory of optimum currency areas: An eclectic view. In Mundell R. and Swoboda, A. (eds.), Monetary Problems in the International Economy. University of Chicago Press: Chicago, United States.
McKinnon, R. I. (1963). Optimum currency area. American Economic Review, 54(4), 717-725.
Micco, A., Stein E. H., & Ordonez, G. (2003). The currency union effect on trade: Early evidence from EMU. Economic Policy, XXXVII, 317-56.
Mundell, R. A. (1961). A theory of optimum currency areas. The American Economic Review, 51(4), 657-665.
Mundell, R. (2003). Prospects for an Asian currency area. Journal of Asian Economics, 14(1), 1-10.
Rose, A. K. (2000a). One money, one market: Estimating the effects of common currencies on trade. Economic Policy, 15(30), 9-33.
Rose, A. K. (2000b). One money, one market: The effect of common currencies on trade. Economic Policy, 15(30), 08-45.
Rose, A. K. (2004). The effect of common currencies on international trade: A meta-analysis. In V. Alexander, G.M. von Furstenberg, and J. Melitz, eds., Monetary Unions and Hard Pegs (pp. 101-11). Oxford: Oxford University Press.
SAARC (1997/1998). SAARC vision beyond the year 2000: Report of the SAARC Group of Eminent Persons. Retrieved from https://search.worldcat.org/title/606585973
Saxena, S. C. (2003). India’s monetary integration with East Asia: A feasibility study. RIS discussion paper RIS-DP, Vol. 64, New Delhi.
Saxena, S. C. (2005). Can South Asia adopt a common currency? Journal Asian Economics, 16(4), 635-662.
Tower, E., & Willet T. (1976). The theory of optimum currency areas and exchange rate flexibility. International Finance Section, No. 11. Princeton University.
Truchis, G., & Keddad, B. (2013). Southeast Asian monetary integration: New evidences from fractional cointegration of real exchange rates. Journal of International Financial Markets, Institutions and Money, 26, 394-412.