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Pacific Island Countries: Possible Common Currency Arrangement

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  • Mr. David William Harold Orsmond
  • Mr. Christopher Browne

Abstract

This paper examines the potential advantages and disadvantages of adopting a common currency arrangement among the six IMF member Pacific island countries that have their own national currency. These countries are Fiji, Papua New Guinea, Samoa, Solomon Islands, Tonga, and Vanuatu. The study explains that the present exchange rate regimes-comprising pegging to a basket of currencies for five countries and the floating arrangement for Papua New Guinea-have generally succeeded in avoiding inflationary, balance of payments, external debt, and financial system problems. The study concludes that adopting a common currency in the Pacific would require greater convergence of domestic policies and substantial strengthening of regional policies, which would take time to achieve.

Suggested Citation

  • Mr. David William Harold Orsmond & Mr. Christopher Browne, 2006. "Pacific Island Countries: Possible Common Currency Arrangement," IMF Working Papers 2006/234, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2006/234
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    References listed on IDEAS

    as
    1. Bank for International Settlements, 2003. "Regional currency areas and the use of foreign currencies," BIS Papers, Bank for International Settlements, number 17.
    2. Andrew K. Rose, 2000. "One money, one market: the effect of common currencies on trade," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 15(30), pages 08-45.
    3. John Hawkins & Paul Masson, 2003. "Economic aspects of regional currency areas and the use of foreign currencies," BIS Papers chapters, in: Bank for International Settlements (ed.), Regional currency areas and the use of foreign currencies, volume 17, pages 4-42, Bank for International Settlements.
    4. Sebastian Edwards & I. Igal Magendzo, 2001. "Dollarization, Inflation and Growth," NBER Working Papers 8671, National Bureau of Economic Research, Inc.
    5. Holden, Paul & Holden, Sarah & Malcolm, Bale, 2004. "Swimming Against the Tide," MPRA Paper 4207, University Library of Munich, Germany.
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    Cited by:

    1. Balli, Faruk & Balli, Hatice O., 2011. "Income and consumption smoothing and welfare gains across Pacific Island Countries: The role of remittances and foreign aid," Economic Modelling, Elsevier, vol. 28(4), pages 1642-1649, July.
    2. Willie Lahari, 2010. "Permanent and Transitory Shocks among Pacific Island Economies - Prospects for a Pacific Islands Currency Union," Working Papers 1001, University of Otago, Department of Economics, revised Feb 2010.
    3. repec:got:cegedp:112 is not listed on IDEAS
    4. Freitag, Stephan, 2010. "Choosing an anchor currency for the Pacific," University of Göttingen Working Papers in Economics 112, University of Goettingen, Department of Economics.

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