An A sian Currency Unit: Simulations for Its Effects on East Asia

An A sian currency unit ( ACU ) is necessary to deepen A sian financial markets and to convert national currencies into a single monetary policy. However, the experiences of the E uropean C urrency Unit and the E uropean Exchange Rate Mechanism crisis in 1992–93 have indicated the danger of the so‐called gradual approach. This study evaluates the effects of welfare should the ACU indicator become a long‐term constraint of the P eople's R epublic of C hina and J apan, the big two in East A sia. Our results indicate that the constraints of countries’ own baskets (e.g. real effective exchange rates) are still better before the launch of a true single currency. That is, pegging to an ACU indicator could hardly be sustained in the long‐run if East A sian countries have not reached a consensus about a regional monetary union.