RESERVE POOLING AND ITS IMPLICATION ON OPTIMUM CURRENCY AREA IN ASEAN

Regional economic integration in ASEAN, ASEAN Free Trade Area (AFTA), is expected to produce positive outcomes on economic growth in ASEAN especially through its impact on trade and investment. This idea can be strengthened if regional monetary integration is followed. Therefore, focusing on reserve pooling, which is one of the proxy for Optimum Currency Area (OCA) variables, this study intends to examine the feasibility of a common currency in ASEAN. In addition, this study also investigates this idea in the presence of external shock.

Reserve Pooling in Asia and the Far East

One of the forms of payments arrangements among the developing countries recognized by the Group of Experts appointed by United Nations Conference on Trade and Development (UNCTAD) [6] is the establishment of a reserve fund by pooling the reserves of the interested countries. The Committee on Invisibles and Financing Related to Trade of UNCTAD recommended that "the pooling of the reserves of the developing countries in particular regions should be considered" [7, Annex I, p. 9]. While a great deal of talk about other forms of payments arrangements has been going on in the region denned by the United Nations Economic Commission for Asia and the Far East (to be called Asia and the Far East region in the paper) i, not much has yet been thought about the possibilities of the formation of reserve funds on regional or subregional basis as a possible measure toward the cherished goal of regional economic cooperation unanimously adopted at the Ministerial Conference on Asian Econo¬mic Cooperation held in Manila [9]. The purpose of this paper is to theoretically examine the rationale for reserve pooling among a group of countries and then to apply this theory to explore the possibilities of gains from reserve pooling on both regional and subregional basis in Asia and the Far East region.