A dollar or yen currency union in East Asia
School of Accounting, Finance and Economics
There are pros and cons for different countries to join a union and adopt a common currency. The European economic and monetary union is viewed to generate fewer costs and deliver greater benefits to its members. Several studies evaluate whether natural currency areas emerge based on historical pattern of international trade and of co-movements of prices and outputs, and found a well-defined dollar and euro areas but no clear yen area. This paper investigates the prospect of a dollar or yen currency union in the East Asia region. Different time series tests of income convergence are used to determine whether increased trade and financial integration has led to currency convergence. The countries included in this study are the high-performing East Asian economies, namely Japan, Hong Kong, South Korea, and the five founding ASEAN member countries.