Testing the Feasibility of ASEAN+3 Single Currency Comparing Optimum Currency Area and Clustering Approach

Abstract

This paper analyzes the possibility of currency integration among ASEAN+3 countries, which consists of Indonesia, Malaysia, Singapore, Philippines, Thailand, China, Japan, and South Korea. Two different methods are employed, i.e. the exchange rate variability based on OCA index and hierarchical clustering analysis. The result showed that Singapore Dollar was the most stable currency in the region during the period of analysis. Furthermore, both methods confirm that the ASEAN+3 single currency –if it will be established-- should start with Malaysia and Singapore, followed then by Japan, Thailand, South Korea and China. On the other hand, Indonesia seems to be lag behind and therefore this country should work harder to join the single currency.