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Part - VI

Finally, a fourth political condition should be added to these economic considerations. Policy-makers and the electorates that empower them in all members must share the same culture of economic policy. The regulator would have to be statutorily bound to pursue only the goal of price stability. Given its legal independence from political control, there is every reason to believe that it will do so. Therefore, from time to time the regulator will raise interest rates to fight inflationary pressures. When it does so, it will harm politically important constituencies in some member states. If the countries share the same economic culture of price stability, then the public will tolerate and accept this.

However, as we know there are no political similarities amongst countries in Asia. On one hand is India with the largest democracy, and on the other we have dictatorships in Middle East countries. Then there is China with only one party always occupying the Government.

To top it all, the political relations of countries are bitter with each other. India and Pakistan are the most obvious examples. India still does not believe China fully. Then there are tensions between Iran, Iraq, Israel and other middle-east countries. Any common economic policy needs the support of all the governments and has to be free from political compulsions/ interference, which seems an impossible scenario as of now in the case of Asia. Till the time mutual trust is developed between these countries and the relations become friendly, the concept of common currency won't have takers.

If these four conditions are met, then the Asian region would constitute an optimum currency area. Giving up the member states' national currencies would involve no losses since each country would need the same exchange rate and monetary policy adjustments at the same time. Moreover, their governments would agree on what those adjustments should be. A single monetary policy would be appropriate for all of the Asian countries.

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* Contributed by -
Harshdeep Jolly, Anshul Mittal & Pankaj Jain,
PGP 2,
IIM Bangalore.