The preconditions for the regional currency unions formation
The expediency of creating a currency zone between countries. Estimation of the contours of regionalization of the future structure of the world monetary system, where there are regions in which the supranational currency is de jure and de facto.
| Рубрика | Иностранные языки и языкознание |
| Вид | статья |
| Язык | английский |
| Дата добавления | 31.08.2018 |
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UDC 339.737: 339.738
THE PRECONDITIONS_FOR THE REGIONAL CURRENCY UNIONS FORMATION
A. Vasylenko
The problem statement. Research background is due to the fact that nowadays there is no theory among economists that would fully substantiate and explain the mechanism of creation and functioning of currency areas. An analysis of recent studies has shown that the questions devoted to justification of the regional currency unions creation have been studied in theoretical and methodological aspects, but it lacks basic research on the actual application of theories of optimal currency areas creation in practice.
The recent research and publications analysis. The issue of consolidation trends in national monetary systems within the formation of the single currency plays an important role in economic science. Such scientists as R. Mandel, R. Makkinen, P. Keenan, J. Necks, M. Moussa, A. Rose, R. Glick, J. Frankel, R. Barro and others have paid attention to this issue. However, in terms of internationalization and globalization in economic relations, the process of regional currency unions' creation began to be accompanied by a number of problems and requires more detailed research analysis of the existing currency areas and prospects of their development.
The article is aimed at determining the nature and prerequisites of regional currency unions. currency zone regionalization monetary
The main material of the research. The economic theory that justifies the formation of currency areas between countries is called "theory of currency areas". There are classic and alternative stages of its development [3].
The main feature of classic theory of currency areas is prevalence of a certain factor on the basis of which monetary integration takes place. The representatives of this trend are R. Mandel, R. Makkinen, P. Keenan, J. Inhrama, H. Fukuda, J. Fleming, M. Moussa.
Such factors include: factors of production mobility between countries, diversification of outside economic sectors, diversification of domestic production potential, similarity of the economies, fiscal policy identity, similar level of inflation, political unity between the countries.
However, none of the representatives of the classical theory of optimum currency areas could not find out one factor that clearly would provide an opportunity to assert the feasibility of effective currency zone establishing, then in the early 90s an alternative theory of currency zones came into existence and stated that in order to create currency zone it is necessary for countries to meet a number of criteria, and to analyze possible advantages and disadvantages of its creation.
The representatives of this trend include A. Rose, R. Glick, J. Frankel, R. Barro, C. Tenreuro, D. Anderson, E. Vinkupa, R. and J. Ohrodnika [3].
Currency zone is a relatively stable area of circulation of certain currencies or territory within which a single monetary policy is provided. The concept of "monetary union" and "currency grouping" were also distinguished. Comparing to monetary union, the latter hasn't common currency is introduced, but ensures a fixed exchange rate, regulates monetary cooperation of national authorities of participating countries [1].
There are following macroeconomic consequences of joining the monetary union for the country: more effective execution of money functions; increasing price transparency and efficiency of interchange; macroeconomic management simplification; loss of monetary independence in monetary policy; loss of ability to obtain seigniorage; limitation of autonomous budgetary policy by union obligations.
There are following preconditions that are necessary for currency zone creation: a large volume of trade between the countries; high labour mobility inside the union; high capital mobility between countries; high flexibility of prices, including wages; coordinated fiscal policies among countries; business cycle similarity inside the union; presence of a single central bank, which has the function of lender of last resort.
The sequence of steps required for the currency region formation and introduction of regional currencies includes: economic integration, the emergence of unifying factors, fixed exchange rates, a system of mutual settlements in national currencies, the coordination of macroeconomic parameters, creation of optimal currency area, introduction of supranational currency at the regional level, implementation of financial instruments in the same currency, the appeal of the currency in the global currency market.
As it was noted above, an important prerequisite for the formation of monetary union is a high degree of intensity in trade relations, consequently, in the past decade inside the European Union and the eurozone annual trend towards to an increase in trade intensity is observed (table 1).
Table 1 The dynamics of the trade intensity inside the European Union and the Eurozone during
|
Union |
Indicator |
2005 |
2006 |
2007 |
2008 |
2009 |
2010 |
2011 |
2012 |
2013 |
2014 |
2015 |
|
|
European Union |
Intra- regional Trade Intensity Index |
1,68 |
1,69 |
1,69 |
1,72 |
1,74 |
1,84 |
1,85 |
1,93 |
1,92 |
1,93 |
1,98 |
|
|
Eurozone |
Intra- regional Trade Intensity Index |
1,72 |
1,73 |
1,70 |
1,73 |
1,75 |
1,86 |
1,86 |
1,95 |
1,92 |
1,91 |
1,95 |
|
|
European Union |
Trade Intensity Index |
1,73 |
1,75 |
1,74 |
1,76 |
1,78 |
1,88 |
1,90 |
1,95 |
1,95 |
1,96 |
1,99 |
|
|
Eurozone |
Trade Intensity Index |
1,75 |
1,76 |
1,74 |
1,76 |
1,79 |
1,89 |
1,90 |
1,95 |
1,94 |
1,92 |
1,95 |
Comparing indices of the countries that use the euro for international settlements and the EU countries shows that the intensity of trade during 2005-2011 in the euro area was higher than in the European Union, that demonstrates the positive impact of the introduction of the single currency.
Analysis of ASEAN main macroeconomic indicators laid down in the Maastricht Treaty, it is clear that the region has reached a very high level of macroeconomic convergence (table 2).
The values of macroeconomic indicators on average in the region were close to the boundaries that Europe has defined to achieve macroeconomic convergence. Nevertheless, among all countries only Brunei, Thailand and Korea completely satisfy all the Maastricht criteria. A number of countries, including Cambodia, China, South Korea and the Philippines, approached close to these borders because they meet 4 out of 5 criteria. Low degree of macroeconomic convergence with neighbours in the region was shown by such countries as Indonesia, Japan, Myanmar and Vietnam.
Excluding Japan, the most likely candidates for the establishment of monetary zone are Brunei, Cambodia, China, South Korea, the Philippines and Singapore, because these countries meet at least the 4 of 5 Maastricht convergence criteria.
The economic growth of India suggests rising of the international status of the Indian rupee and the creation on its base currency of the South Asian Association for Regional Cooperation (SAARC).
Table 2 Macroeconomic convergence of East Asia in 2014 [5]
|
2014 |
Country |
Inflation at end of year (%) |
The level of refinancing rate at end of year (%) |
National currency to USD at the end of the year (% to prev. year) |
The level of budget surplus / deficit (% of GDP) |
The level of public debt (% of GDP) |
|
|
ASEAN |
Brunei |
1,2 |
5,5 |
1,05 |
-0,7 |
2,3 |
|
|
ASEAN |
Cambodia |
1,1 |
1,4 |
1,02 |
-3,6 |
33,9 |
|
|
ASEAN |
Indonesia |
8,4 |
7,8 |
1,02 |
-2,3 |
25,0 |
|
|
ASEAN |
Laos |
2,4 |
5,0 |
1,01 |
-4,2 |
44,5 |
|
|
ASEAN |
Malaysia |
2,7 |
3,3 |
1,06 |
-3,5 |
52,7 |
|
|
ASEAN |
Myanmar |
7,1 |
10,0 |
1,04 |
0,0 |
29,7 |
|
|
ASEAN |
Philippines |
2,7 |
4,0 |
1,01 |
-0,6 |
45,4 |
|
|
ASEAN |
Singapore |
-0,2 |
0,3 |
1,05 |
0,1 |
99,8 |
|
|
ASEAN |
Thailand |
0,6 |
2,0 |
1,00 |
-2,5 |
42,8 |
|
|
ASEAN |
Vietnam |
1,8 |
6,5 |
1,00 |
-5,7 |
50,5 |
|
|
ASEAN+3 |
China |
1,5 |
5,6 |
1,02 |
-2,1 |
41,1 |
|
|
ASEAN+3 |
Japan |
2,4 |
-0,1 |
1,14 |
-7,1 |
226,1 |
|
|
ASEAN+3 |
Korea |
0,8 |
2,0 |
1,04 |
-2,0 |
35,1 |
|
|
Maastricht criteria: |
< 2,2 |
< 5,8 |
+/- 2,25 |
> - 3,0 |
< 6 0,0 |
||
|
ASEAN |
2,8 |
4,6 |
1,03 |
-2,3 |
42,7 |
||
|
ASEAN+3 |
2,5 |
4,1 |
1,04 |
-2,6 |
56,1 |
Figure 1 shows that countries of the region have sufficient foreign potential which is gradually gaining more power after 2012 and also can form the deeper integration. But the struggle for leadership in the political and economic field between India and Pakistan hinders the integration processes. SAARC is only used as a platform for annual meetings of leaders and for regular discussions.
The Council of the Gulf Cooperation has announced about the issue of a single regional currency. In 2001 countries decided to create a single currency area with currency tied to the dollar. And after two years trade intensity increased by 10% (figure 2) and maintained at the level of 4.2 till the 2008 crisis. It can be assumed that the "Gulf currency" quickly finds its place in the world. The obligations of issuers will be provided with oil and gold [2].
Fig. 1. The dynamics of the trade intensity between the countries of South Asia during 2005-2015 [4] Fig. 2. The dynamics of the trade intensity between the countries of Southwest Asia during 1990 -2015 [4]
Speaking about the prospects of the single currency in UNASUR, we cannot give a definite positive outlook. UNASUR does not meet the optimum currency area. Economic integration of the Andean Community and of the Mercosur is on developing stage, there are still two blocks, and each of these represents a single customs union. Countries are closed to each other, intra-regional exports is less than 2.0% of GDP, trade intensity indices in the last ten years elect a tendency to fall (figure 3).
In Central America on the Bolivarian Initiative (ALBA) basis in 2010 the monetary union was established and supranational currency "Sucre" is used. Sucre was fixed to the US dollar (Sucre 1 = $ 1.25). And according to the plans it will apply in the form of virtual currency, on the first stage - just inside ALBA.
Fig. 3. The dynamics of the trade intensity between the countries of Latin America during 2005 -2015 [4]
Active position of the oil-producing Venezuela, whose leader is one of the main ideologists of exclusion the dollars from the oil trade and also from the petroexporting Ecuador and Bolivia that is rich in hydrocarbons draws attention to Sucre. It is probable that in case of positive succession of events countries of the Central American Common Market will join to Sucre. On the other hand, it appears that the Sucre appeal is motivated not by the economic reasons (lack of liquidity for International Settlements), but by the political considerations.
US, Canada and Mexico signed the North American Free Trade Agreement (NAFTA) in 1992, which greatly increased mutual trade. Plan of North Atlantic Union (NAU) was proposed by Canadian economist Herbert in 1999. Although now it is nothing more than the format of the annual meeting of leaders of the three countries that discuss the ideas of continental integration. There are a lot of discussions about the prospects of an "Amero" instead of the dollar. Pretty serious argument in favour of an Amero is that its base is the US dollar which for 200 years is one of the world's leading currencies.
There are "trade wars" among the NAFTA countries ("salmon", "apple", "tomato") as far as NAFTA members could not agree on measures to regulate the trade. So, start of the real functioning of monetary union needs complex political decisions, which requires the US to sacrifice its economic sovereignty, and Canada - political. In addition, these decisions will be unpopular not only among the population of the United States and Canada, but will be not supported by the international community.
Small States of the Caribbean Community seriously moved towards to regional currency zone forming. An important milestone for the CARICOM Treaty was signed in Chahuaramas in 1973, which decided on the first phase to convert Caribbean free trade market in general, and on the second - to create a "single economy".
CARICOM countries have liberalized currency restrictions; have concluded bilateral agreements on mutual investments encouragement and protection of to avoid the double taxation. In seven countries of CARICOM a single monetary policy is implemented and the single currency (the Eastern Caribbean dollar) is used.
The final formation of the Caribbean region's currency is hindered by a number of factors. The low level of economic development, as a consequence complementarity and interdependence among countries are low enough; some countries do not meet the convergence criteria. The export structure is highly specialized and heterogeneous. Mutual trade is characterized by a predominance of low-tech products. In addition, some countries participate in other integration associations.
The lack of visible progress in the integration of African countries is an important factor that does not give an opportunity to build optimistic plans in the African Monetary Union establishing. It is not even able to link the exchange rates of countries (potential participants of Eastern and Southern zones). But the main thing is the differences in macroeconomic indicators.
Thus, the formation of currency unions is controversial, but it is possible to identify perspective regions such as eurozone, ASEAN, the Gulf Cooperation, Africa, Central America, NAFTA countries and the Caribbean.
The conclusion of this study and further research in this area. The transformation of the modern monetary system is the urgent task for international community not only as the final overcoming of consequences of the global financial crisis and as prevention of economic challenges in the future. Globalization processes in global economy require adequate changes in world finance. The process of forming a multipolar currency structure include: Eurozone, ASEAN, the Persian Gulf, Africa, Central America, NAFTA countries and the Caribbean. In further studies, the author plans to conduct quantitative analysis of other criteria of currency integration among these associations.
List of references
1. Акельев Е. С. Перспективы развития валютных союзов в условиях мирового экономического кризиса / Е. С. Акельев, Ж. А. Ермушко // Вестник науки Сибири. - №4. - С. 171-176 ; Akelev Ye. S. Perspektivy razvitiya valyutnykh soyuzov v usloviyakh mirovogo ekonomicheskogo krizisa / Ye. S. Akelev, Zh. A. Yermushko // Vestnik nauki Sibiri. - 2012. - №4. - S. 171-17
2. Люкевич И. Н. Мировая денежная система как совокупность валютных регионов / И. Н. Люкевич // Международная экономика. - 2011. - №10. - С. 67-81 ; Lyukevich I. N. Mirovaya denezhnaya sistema kak sovokupnost valyutnykh regionov / I. N. Lyukevich // Mezhdunarodnaya ekonomika. - 2011. - №10. - S. 67-81
3. Пінчук А. К. Теорія оптимальних валютних зон: від класиків до сьогодення / А. К. Пінчук // Бізнес Інформ. - 2013. - № 12. - С. 81-87 ; Pinchuk A. K. Teoriia optymalnykh valiutnykh zon: vid klasykiv do sohodennia / A. K. Pinchuk // Biznes Inform. -Submitted: 27/10/2016.
Annotation
The scientific paper is devoted to actual issues of the theory and practice of regional currency unions establishing. This paper determines the characteristics of the main stages of the theory of optimum currency areas evolution. The basic prerequisites that are necessary for the currency area establishing are determined, the main advantages and disadvantages that country will get from participation in the process of monetary integration are systematized, and the sequence of steps required for the formation of currency region and introduction of regional currencies are summarized.
The research evaluates the outlines of monetary regionalization, provides the assessment of the future global monetary system structure in which there are regions, where a supranational currency applies de jure and de facto, analyses existing effects of monetary integration among countries. Given the current trends of the world economy on the basis of the research possible scenarios of existing regional currency unions are proposed.
Key words: optimum currency area, monetary union, currency groupings, currency union, regional monetary integration, convergence criteria, the index of intensity of intra- regional trade, the global monetary system.
Стаття присвячена дослідженню актуальних питань теорії і практики створення регіональних валютних об 'єднань. В роботі розглянуто теоретичні основи доцільності створення валютної зони між країнами, надано характеристику основним етапам еволюції теорії оптимальних валютних зон. Визначено основні передумови, які визначають доцільність створення валютної зони між країнами, систематизовано основні недоліки та переваги, які отримає країна від участі у процесах валютної інтеграції, узагальнено послідовність кроків, необхідних для формування валютного регіону і введення в обіг регіональної валюти.
Надано оцінку контурів валютної регіоналізаціі майбутньої структури світової валютної системи, де існують регіони, в яких наднаціональна валюта звертається де- юре і де-факто, проаналізовано існуючі ефекти від валютної інтеграції серед країн світу, які можуть утворити регіональні валютні об 'єднання.
На підставі дослідження, враховуючи сучасні тенденції розвитку світового господарства, автором запропоновані можливі сценарії розвитку існуючих регіональних валютних об'єднань. Виявлено передумови валютної інтеграції серед країн АСЕАН, Африки, Центральної Америки, країн НАФТА та Карибського басейну.
Ключові слова: оптимальна валютна зона, валютний союз, валютне угрупування, валютне об'єднання, регіональна валютна інтеграція, критерії конвергенції, індекс інтенсивності внутрішньорегіональної торгівлі, світова валютна система.
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