1.1 Introduction

Euro (€) currency was created in 1957 and the single currency provides many benefits to the euro region. For an example, Euro currency eliminated exchange costs and fluctuation risks. It gives stability of economic to the euro region, so it allows government to have better long term planning for future. In addition, economic stability also helps to reduce uncertainty and increase investment, so it gives advantages to the businesses as well. As businesses gain advantages from economic stability, it also give benefits to the citizen as it provides more job and better quality jobs. Furthermore, with a single currency, it is less risky and more cost-effective when doing business within the euro area as there is one large integrated market. Besides that, it promotes cross-border trade and all kind of investments as the price can be compare easily when using the same currency. (N/A, 2014) Thus, the successful of implementing a single currency of euro (€) arise the interest to the topic of whether other region can successfully adopting common approaches. Especially for ASEAN region as ASEAN is one of the region that economic acceleration is much positive. However, there is always a question whether ASEAN can successfully implemented a common currency, as euro currency in European Union. We have to look at the challenges of adopting a single currency for ASEAN economic in order to identify whether ASEAN region is suitable to make such approaches.

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1.2.1 Intra-Regional Trade

First of all, substantial intra-regional trade is one of the key challenges to adopt single currency for Asia. Big volume of inter-transaction within Asia will enhance the currency of countries in Asia. However, countries in Asia done more trading with countries where outside the region, approximately 75% more than countries in Asia. Therefore, Asia countries are worried for their currencies stability against international currencies if they adopt a single currency. Asia countries can import more goods and services from countries outside the region than intra-regional countries only if their total exports is greater than total imports. (Lee, 2009) To sum up, Asean region have to increase their transaction within their regional area before implement a single currency in order to stabilize Asean currency.

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1.2.2 Economic Development

Besides that, Asean countries have different economic development, their GDPs and per capita income levels are different to one another countries. For instance, per capita income of Singapore is approximately 350 times more than poor country like Myanmar’s. In addition, countries in the region area like China, India and Indonesia are part of the largest countries in the world, yet they show big income differentials. It is difficult to bear a similar monetary management with such a big income differentials. (Lee, 2009)

1.2.3 Monetary System & Market Integration

Moreover, monetary integration is another big challenge to adopt single currency for Asean region. Monetary integration refer to central banks and governments of the region countries would have less control over monetary policies and fiscal policies. However, some countries are just not ready for such integration as monetary policy is an important tool to stimulate economy. For instance, countries are not able to use tools such as interest rates to address cyclical needs. (Lee, 2009) For further explanation, every country have different economic objectives, for an example, some countries in the region are suffering recession and some countries are suffering an inflation. Thus, expansionary policies are needed for some countries to address recession, and contractionary policies are needed for some countries to address inflation, but ASEAN central bank can only implement one monetary policy at one time. Therefore, there is a huge problem among the union. In addition, countries like Japan and Korea such developed country have maintain tight restrictions on labor mobility. However, Governments of region countries have to implement policies which allow for greater mobility for labor and capital across within the region borders in order to manage a common currency. However, it is hard to transfers large-scale of resource across national borders as at the union level, governments will have less centralized budget. In addition, Asean is desire to set limits on the fiscal deficits for each country due to experience from European. Hence, country can only respond to country specific shocks by using limited fiscal policies. (Madhur, 2002)