Eurozone: Asian single currency anyone?
There’s been growing speculation on the implications of the Eurozone crisis for the rest of the world, including of course Asia. Some it is ignited by Britain’s decision to keep out of the European ‘fiscal compact.’
There are some obvious implications for Asia. There have been warnings from City bosses that Britain’s move could dampen Asian investments in London. Equally, we don’t yet know how foreign investors in Europe will react to the 49 European financial sector regulations that are reportedly in the pipeline. A report by OpenEurope takes a dim view of the regulations. You can read a summary of the report here.
The is another, less obvious, implication. China has already welcomed the European compact while wisely holding back comment on the British move (wisely because no one – not even Britain – knows how this drama will unfold over the coming months and years). Here’s an interesting analysis from the European Council for Foreign Relations, which says the immediate effect will be to nudge the European Central Bank into a more powerful position. “For economic growth, the new compact will be toxic,” says the analysis, which you read here.
China says it will support European integration. More interestingly, it appears to be revisiting the idea of a single Asian currency – something that keeps cropping up in international forums, often floated (if that is the word) by the Chinese themselves.
A recent article in the Chinese People’s Daily quotes Robert Mundell, the single currency theorist who has been called the godfather of the Euro, as saying an Asian single currency is “unlikely” in the immediate future, but “foreseeable” in the years to come. Such a move could be led by a fully-convertible RMB and the Rupee as and when they become global currencies. “Either those currencies are going to be classed to be number one currency in the world,” Mundell, a Nobel laureate, is quoted as saying in the article that appeared on the day the 27 European leaders began their 10-hour-long summit in Brussels.
“It is not declining economic power like Japan, or China’s regional rival like India, or any international organization like Asian Development Bank (ADB) which the intellectual father of the euro expects to lead the formation of healthy currency area in Asian region, but China,” says the article. This clearly points to an ‘either-or’ scenario.
Is all of this anything more than wishful thinking? The article, which you can read here glosses over a central difficulty: whether monetary union in Asia can be realized given the widely differing political dispensations of the regional powerhouses (will it work with a dictatorship?). There are also questions of political sovereignty. Following Britain’s decision to stay out of the European fiscal compact last week, it is the issue of political sovereignty that once again dominates the debate.
If an RMB-led Asian single currency does become a reality “10, 20 years” from now, as the article speculates, will India then do a Britain?