ASEAN Economic and Monetary Integration: The Feasibility of The Optimum Currency Area

Abstract

Economic integration in recent years has become a trend in many parts of the world, including ASEAN. The process of economic integration in ASEAN has begun with economic cooperations that leads to the establishment of the ASEAN Economic Community (AEC). Follow-up of the ASEAN economic community is area with the establishment of a regional currency. The purposes of this study are to analyze the opportunity of establishment of the currency area in ASEAN and to analyze the relationship between the exchange rate variability and the forming OCA-index variables in the short and long term. This study focused on two analyses; the descriptive analysis and quantitative analysis using the Error Correction Model (ECM). The results of descriptive and quantitative analysis showed that theASEAN countries have diverging economies. It is an obstacle to the establishment for the currency area because the divergence of economies in those countries will make the regional policy ineffective. However, the opportunity of the establishment of the currency area in ASEAN is still open, especially in the long run. This is supported by the increasingly smaller economic divergence between the ASEAN countries and the OCA index that is not too high.