Aman Agarwal

Proposal for the Possible Establishment of an ASEAN Dollar

The current optimal strategy for ASEAN countries is to assess whether the necessary environments exist for the establishment of a well-integrated common financial market for the ASEAN area, and consequently support for a single currency. The currency is for discussion purposes termed the ASEAN Dollar. In this paper we focus on a practical application, involving two components: 1) The six convergence criteria that we propose each ASEAN country should meet in order to become eligible for the ASEAN Dollar; and 2) Establishment of the ASEAN Economic and Currency Community (AECC). Further, measurement of the evolution of financial market integration in the ASEAN countries will be investigated. Patterned vector time-series modelling will be utilised to set up and monitor economic and financial integration indicators. Those economic and financial integration indicators will be applied to measure the following three broad financial categories in the ASEAN countries: a) credit and bond market integration and cointegration to establish the nature of short and long-term co-movement; b) Stock market integration and cointegration to establish the nature of short and long-term co-movement; and c) Exchange rate market integration and cointegration to establish the nature of short and long-term co-movement. Subsequent evaluation of key indicators of economic and financial integration will also be undertaken.