Association of South East Asian Nations (ASEAN)
The Association of South East Asian Nations, comprising Indonesia, Malaysia, Philippines, Singapore and Thailand, is using the EU model to form an economic union to create a common currency area which they believe could help to prevent a repeat of the financial crises they experienced in 1997 (Gharleghi et al. 2015). In 1997, the leaders of ASEAN countries agreed to the establishment of currency swaps and repurchase agreements as a credit line against future financial shocks. These countries considered the possibility of creating an ASEAN Economic Community by 2020, a time frame they later agreed to shorten to 2015. As result of the progress made on the initial plans, in 2005, ASEAN Members agreed to expand their network of bilateral currency swaps into multilateralization which eventually created a de-facto “Asian Monetary Fund”. In addition, the Asian Bond Market Initiative created in 2003 is meant to ensure that Asia collects more of its own savings to channel into local investment. These steps are now providing a significant basis for regional integration with the possibility of a single common currency.
European Monetary Union
The European Monetary Union (EMU), consisting of Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Latvia, Lithuania Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia and Spain, is arguably one of the successful monetary unions created in recent years with a single currency replacing the member countries’ individual national currencies. It was established in 1999 and came into full force in 2002. The EMU is a result of a European Community goal, under the Maastricht Treaty, to create a single market (Klein 1998). This was to deepen the community and move towards a monetary union to further strengthen economic integration and achieve a larger single market for the Western and Central European countries which use a single currency. The single currency was envisaged to reduce the transaction cost that come with trading in multiple currencies. It should also be noted that the EMU was also guided by the need to develop a political union bringing together the countries with rather stable democratic constitutions (Gonzalez and Launonen 2005).
Although the introduction of a single currency simplified trade between European countries, each country gave up its ability to use monetary policy to influence its economy leaving their respective central banks with no power to set interest rates. Furthermore, no country within the EMU was left with the ability to adjust its exchange rate vis-a-vis others. The extent of the loss of independent monetary and exchange rate management depends on the types of macroeconomic shocks that hit the economy and how well other adjustment mechanisms compensate for the lack of exchange rate flexibility. This depends on the level to which prices and wages adjust to accommodate those shocks, the degree to which labour can move across borders and the extent to which fiscal policy can be used to control the economy.
The EMU holds a lot of lessons for SADC and other regions that are aiming at currency and monetary union in their endeavours. Various member countries had differences in attitudes as far as the role of monetary policy in economic integration was concerned. The dispute was a conflict between “monetarists” and “economists”. The monetarists believed that monetary integration had to start first with economic and political integration following whilst the “economists” believed that economic convergence between national economies must occur first before the national economies could move close to monetary integration and a monetary union.