The Prospects for a Common Currency in Asia.

(From Journal of Japanese Trade & Industry (JJTI))

Byline: Inoguchi Takashi

Gauging People's Minds is a Must to Facilitate Economic Integration and a Common Currency. Envisioning economic integration in Asia, it is useful to reflect how Europe has come a long way. What are the distinctive features of European integration? In my view, they can be summarized as follows: Europeans are pragmatic and anticipatory idealists. They hold a certain set of goals they want to materialize, make short, intermediate, and long-term plans, and act on the basis of their measurement of empirical realities in light of these plans. They envisaged a number of phases of European integration at a fairly early stage. These phases are not very different from those identified by economists like Bella Balassa as far as trade, investment and financial services are concerned. Most important is the fact that they took action according to each phase and on the basis of fairly solid and continuous empirical testing of realities about regional integration.

Two examples will suffice. First, two major conditions set the stage for detente and eventually ended the Cold War in Europe. (1) the Helsinki Declaration affirmed that disarmament and human rights are two of the important benchmarks for the mutual accommodation between Western and Eastern Europe. Both steadily undermined the internal movements of Eastern Europe from within; (2) the oil pipeline prepared the economic interdependence between Western and Eastern Europe, which developed steadily since the early 1970s when the oil crisis hit the West hard and the Helsinki Declaration was agreed. As if these stages were anticipated, Europeans pushed these agendas fairly steadfastly over more than two decades until the end of the Cold War, which prepared the EC/EU to enlarge itself.

Second, a common European currency was anticipated well before it was realized. When the Holy Roman Empire existed with Aachen as its capital, the first common European currency was materialized albeit only for a very brief period of time. At first, the authority of coinage was monopolized by the city of Aachen. Later, however, a number of cities which were controlled by local chieftains asserted themselves to obtain the right of coinage. This bought the collapse of the first common European currency. Europeans thought about a set of conditions to make a common currency stable and reliable. One of the conditions is not to allow a member state government to register an excessive lack of fiscal self-discipline beyond a certain limit. In a sense, this is a lesson from Aachen's failure about the right to mint coinage.

The preparedness of Europeans with a common currency was clear by 1985. The Plaza Accord on bolstering US competitiveness was concluded and implemented. Japanese yen was poured into New York to purchase massive quantities of US government bonds. So was the Deutsche mark. But the Japanese purchases were much larger. Somehow the inflows of Deutsche mark were much more limited, perhaps recognizing the need not to let the US dollar to retain its position and status of the key global currency. Furthermore, without experiencing the collapse of a bubble economy which took place in Japan in 1991 in part caused by the accord, Europeans went ahead to materialize currency integration in 2001, 10 years after the end of the Cold War.

Here I want to emphasize the continuous surveys of many aspects of life, economy, culture and politics in Europe. On economic and currency integration, for instance, the Eurobarometer was installed in 1973 to gauge the sentiments and opinions of Europeans on wide-ranging things and ideas, including economic integration and a common currency. The question "Do you think that European integration is a good thing, a bad thing or neither?" has been asked for more than three decades everywhere in the EU member countries. It is very important to gauge whether ...