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Dealing with multiple currencies: what options for the transitional economies of Southeast Asia?

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  • Jayant Menon

Abstract

There is a spectrum of policy options available in dealing with dollarization in the transitional economies of Southeast Asia. These range from official dollarization at one end and enforced de-dollarization at the other. In between lie: currency board arrangements (CBAs), single currency options; and the muddling through approach. Both official dollarization and CBAs are not viable options for these countries. Official dollarization is politically untenable, while implementing a credible CBA is currently beyond the financial capacity of these countries. The single currency option remains somewhat vague in terms of detail, in relation to both design and time frame, and the region is unlikely to meet Optimal Currency Area (OCA) criteria. Lao PDR attempted to enforce de-dollarization in 1997, but the result was counter-productive. The muddling through but accelerating reforms approach appears to be the most realistic option. This approach views the multiple currency phenomenon (MCP) not so much as the problem, but rather as a symptom. The causes of the problem emanate from macroeconomic instability, political uncertainty, an underdeveloped financial and monetary system, and weak legal and institutional systems. Addressing these problems directly should eventually remove the symptom in the form of the MCP.

Suggested Citation

  • Jayant Menon, 2008. "Dealing with multiple currencies: what options for the transitional economies of Southeast Asia?," Journal of the Asia Pacific Economy, Taylor & Francis Journals, vol. 13(2), pages 131-146.
    • Handle: RePEc:taf:rjapxx:v:13:y:2008:i:2:p:131-146
    DOI: 10.1080/13547860801923525
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    References listed on IDEAS

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    1. Mr. Carlos A. Végh Gramont & Ms. Ratna Sahay, 1995. "Dollarization in Transition Economies: Evidence and Policy Implications," IMF Working Papers 1995/096, International Monetary Fund.
    2. Sahay, Ratna & Vegh, Carlos, 1995. "Dollarization in transition economies: Evidence and policy implications," MPRA Paper 20490, University Library of Munich, Germany.
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    Cited by:

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    4. Jayant Menon, 2021. "ASEAN’s newer member countries in two financial crises: Impact, response and lessons," Departmental Working Papers 2021-27, The Australian National University, Arndt-Corden Department of Economics.
    5. Inthiphone Xaiyavong & Toshihisa Toyoda, 2016. "Currency Substitution in Laos," Asian Economic Journal, East Asian Economic Association, vol. 30(1), pages 67-89, March.
    6. Marinakis, Yorgos D. & White, Reilly & Walsh, Steven T., 2020. "Lotka–Volterra signals in ASEAN currency exchange rates," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 545(C).
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