PROSPECT OF FORMING A COMMON CURRENCY AREA IN ASEAN-10 COUNTRIES

Abstract

This study aims to examine the feasibility and prospect of ASEAN-10 countries for common currency area. According Sigma Convergence Criteria defined by Chowdhury (2004), sigma convergence model is proposed whereby available convergence played as a good model to examine the feasibilities of economic indicators to support the prospect of ASEAN-10 countries to create common currency area. Method that is used in this research consists of the EMU (European Monetary Union) model principle in launching their single currency (Pitchford and Cox, 1997) and the sigma convergence model (Chowdhury, 2004). Pitchford and Cox (1997) edited the European Monetary Union (EMU) principles for launching single currency for Europe. This research studies economic indicators that have been used, according to the editors of EMU principles for launching single currency for Europe, there are; Consumer Price Index (CPI), Real Exchange Rate in US dollars (RER), Growth rates of Foreign Exchange Reserves (GFER), Growth rates of Real Volume of Trade (GRVT), Growth rates of Real Relative Volume of Trade (GRRVT), and Growth rates of Per Capita Real GDP at factor cost (GRYPC). Through Eviews-6 this research studies examined the panel data cross section sigma convergence econometrics model, in which the result shows that the β coefficient of all economic indicators value are negative, whether this result according to Chowdhury (2004) show signs as convergence over the whole period of 1992s through 2009s, which means that the six indicators that examined by this research support the feasibility of ASEAN-10 countries to create common currency area. This convergence result also convinces that ASEAN-10 countries have a good prospect of forming a common currency area as their single currency to enhance their economic performance to a brighter future.