It is “what we want” is the prevailing sentiment of the policy makers and business communities of Asia looking at Europe’s monetary union. The union may not be doing all that well at times, but Asians admire its success nonetheless. After centuries of waging war and bickering among themselves, eleven nations of Europe (Austria, Belgium, Finland, France, Spain, Germany, Ireland, Italy, Luxembourg, Netherlands, Portugal, and later Greece and The Vatican City) surrendered their local currencies and adopted a single currency — the Euro — on January 1, 1999. Since then, the union has expanded greatly. Leaders in Asia, too, have a similar vision of a single currency for East Asia, and have proposed this idea at meetings of the Asian Development Bank (ADB), which represents over 60 member states both within and outside of the Asia Pacific Region. Promises Monetary union holds the promise of free, unrestricted trade, travel and migration between member nations. The combined populations of fast-growing, East Asia account for two-fifths of the world’s inhabitants. The rationale for the change is obvious to anyone who exchanges money when traveling from country to country: no currency conversion means no exchange rate fees. Goods priced in one currency make price comparison easier, too. Of course, a lobster dinner in Tokyo may never cost the same as one served in Bangkok, Thailand. Exporters would not have to worry about different exchange rates in each country either, and the ability to combine resources during a FOREX attack (see Unit 3), would make such an event less likely to succeed. Perhaps, the biggest headache for exporters and Asian central bankers is the lower value of their currency reserves due to fluctuations in the US dollar. When this happens, the funds they hold lose purchasing power. A nation, with US $600,000,000,000 (600 billion) in reserves, would lose US $6,000,000,000 with a one percent depreciation of the US dollar. This means that the goods exchanged for the money were never really paid for, because real wealth never changed hands. Asia is home to the largest pool of US dollars in the world. An Asian Currency Unit, ACU, would make troubles with the US dollar less cause for concern.Obstacles The idea of a monetary union may seem like a joke to some skeptics. The euro took about 30 years to implement in an environment of trust and peaceful coexistence. Strained relations among the three largest economies – China, Japan, and South Korea, make this unlikely in the near future. Who will the new leader be? All three aspire to assume the role.

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Europe did it, so why can’t Asia?

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In spite of Asia’s vast size, it also has many weaknesses. Creating an Asian monetary union involves the coordination of different political and economic policies — a daunting task. Asia is a collection of socialism, capitalism, communism, monarchy, dictatorship, and republican forms of government. It is plagued by terrorism, military coups, upheavals, civil unrest, disagreement over national boundaries

and territories and diplomatic status. Union means countries balancing their budgets and trade. Wealthy and poor nations alike must govern themselves by a common set of principles mandated in a constitution. Countries use to living beyond their means must curb reckless spending. An ACU currency needs to be more attractive to hold. Member countries are very strong in the manufacturing sector, but the banking sector needs beefing up, especially in financial services. As demographics change, aging populations will require stable retirement funds and a dependable social security system. Citizens want to hold on to a currency that provides the greater sense of security.A Long, Long Time Monetary union in East Asia is not going to happen overnight. Governments are reluctant to join for a variety of reasons. Leaders worry about losing national sovereignty and sharing power with weaker nations, which allow foreigners a voice in domestic affairs; harmonizing national interests with those of neighboring countries on policy decisions such as tax and trade; and relinquishing the power to issue money and the clout that comes from spending it. Furthermore, nations inclined to inflate their money supply would be under great pressure to stop the printing presses. What about a currency appreciation of the ACU? Consumers might be jubilant, but Asia’s export oriented economies will surely suffer from reduced competitiveness, as Europe has in the past. Central banks will have to sell their Asian dollars to prevent this from happening. What will they accept in return: US dollars, again? Euros? Russian rubles?The First Steps The process has already begun in a limited way. Some nations, such as China, Japan and Korea have agreed to exchange part of their currencies for those of other nations including Singapore, Malaysia, Thailand, Indonesia and the Philippines. Under these agreements, banks may transfer emergency funds to one another in order to fend off speculative attacks, and countries that fall on hard times will have easier access to loans. Central banks are now pooling some of their resources in order to buy bonds in member countries. All eyes are still fixed on Europe looking for any signs of success or failure. For many, the idea of a single currency is still a pipe dream. However, to say it is impossible is to underestimate the determination and leadership capabilities of East Asian policy makers. The road to monetary

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union may very well be long and winding. But, patience is one virtue Asians never lack. Is There Room for a Third Currency? Presently, the Euro is the only serious contender for the title “world’s reserve currency”. Disagreements within the member states of the European Union make it doubtful that the Euro will replace the dollar anytime soon. Some economists predict the doom of the US dollar in the long run, but are uncertain as to how long this will take. Others assume it will never happen. Certainly, diversifying into other currencies will make the US dollar less popular and most likely lead to devaluation. Competition among three major reserve currencies might mean dominance by none of them. This could be good, because the central banks sponsoring them must improve their own balance sheets, which means reducing inflation and correcting trade imbalances.

What about the Yuan? The USA became the economic and political powerhouse of the world, because of its productive capacities, major role in international relations and military power. As a result, nations were always willing to exchange dollars for goods. But, this has changed. The USA has been allowing the dollar to lose value in the hope of balancing its trade deficit, and has lost its productive capacity through outsourcing. This is precisely what happened to the British Empire. The British outsourced work to the colonies, because labor was cheaper. This led to a devaluation of the pound which was then the world’s reserve currency, and the end of the British Empire. A cheap currency is an unpopular one. As America’s productive capacity increased, so did the popularity of the dollar, and finally replaced the pound as the world’s reserve currency. If we look at China and the USA today, the same process is underway possibly leading to the rise of the yuan, and the decline of the dollar. The nations of East Asia may very well get the single currency they wish for — but that could be the yuan!

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After Reading. Obstacle or Benefit? A. Write “B” next to the expression, if it is considered a benefit of a single Asian currency or “O” if it is an obstacle. There are 8 same answers for each.

loss of political control free, unrestricted trade

strained relations among the three largest economies different forms of government

easy migration the ability to combine resources during a FOREX attack

no currency conversion disagreement over national boundaries and territories

no exchange rate fees free travel

the coordination of different political and economic policies

military coups, upheavals, civil unrest,

not having to worry about different exchange rates the banking sector needs beefing up

curb reckless spending easier price comparison

Paraphrasing. The art of saying something another way in order to clarify it is called paraphrasing. Re-write the excerpts below. The first has been done for you. Answers will vary.

1. After centuries of waging war and bickering among themselves, eleven nations of Europe surrendered their local currencies and adopted a single currency — the Euro

The nations of Europe decided to stop fighting amongst themselves and work together

towards economic progress.

2. The rationale for the change is obvious to anyone who exchanges money when traveling from country to country: no currency conversion means no exchange rate fees.

3. When this happens (lower US dollar), the funds they (Asians) hold lose purchasing power.

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4. The idea of a monetary union may seem like a joke to some skeptics.

5. Countries use to living beyond their means must curb reckless spending.

6. As demographics change, aging populations will require stable retirement funds and a dependable social security system.

7. Monetary union in East Asia is not going to happen overnight.

8. For many, the idea of a single currency is still a pipe dream.

9. Some economists predict the doom of the US dollar in the long run…

Reading for Detail.Fill in the blank spaces below with information from the reading. Write short answersThe original number of nations that adopted the euro.

The beginning date of the euro.

Percentage of the world’s population that lives in East Asia.

The 3 largest economies of East Asia.

The only contender for the title of “world’s reserve currency”.

World’s reserve currency before the dollar

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Activity. Design The New Asian Currency UnitA. Designing the euro was difficult enough. Europe is mosaic of many different languages and cultures. Designing a new Asian dollar would not be any less difficult a task. Each nation would insist on fairness, that is, no one nation should be overly represented. What pictures would it include? What colors would it be?

Make a list of the following for East Asia:

Famous people Monuments and landmarks

Animals Plants

B. Group Work. Work in small groups. Imagine each member represents a different interest, for example, China, Japan, S. Korea, etc. Have a discussion and try to agree on what pictures should be on the new currency. Afterwards, see if you can design the new bill. Choose one of the styles below: (L-R) European, Asian or American style.

FRONT

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React.

1. How do you feel about a single currency for East Asia? Is it “a pipe dream”, that is, just a fantastic, unrealistic dream?

2. What would you warn the leaders of Asia about before they agreed to use a single currency?

3. Which country would be the main engine of economic growth in the region?4. Which member nation would be the most difficult to control?5. Which nations should and should not be allowed to participate in an Asian

monetary union? Put a check mark next to the names with which you agree. Discuss your choices.

AustraliaBangladesh BhutanBruneiBurmaChinaEast Timor IndiaIndonesiaJapanLaosMalaysiaMongolia Nepal

New ZealandNorth KoreaPapua New GuineaRussiaSingaporeSouth KoreaSri LankaTaiwanThailandThe PhilippinesThe United StatesVietnamOthers?

Crossword.Countries and Capitals.

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Complete this puzzle by writing in the capital cities of these counties.

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Across 1. Helsinki4. Dublin6. Madrid8. Lisbon9. Brussels11. Amsterdam12. Vatican City

Down 1. Paris2. Luxembourg3. Berlin5. Athens7. Vienna10. Rome

REVIEWExplain these verbs.

to migrate -

to populate -

to fluctuate -

to depreciate -

to relate -

to coordinate -

to collect -

to constitute -

What have you learned from this unit?

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What else would you like to learn about an Asian Monetary Union?

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