Establishing an optimum currency area among the South Asian countries

Abstract

A new era of economic cooperation was ushered when the former prime minister of the Indian republic Mr. Atal Behari Vajpayee called for the establishment of a common currency between the South Asian countries of India, Pakistan, Bangladesh, Sri Lanka, Maldives, Nepal and Bhutan at the at the twelfth SAARC summit held at Islamabad, 4 Jan, 2004. The move signified an emergence of an epoch of economic cooperation in the short but eventful history of the South Asian neighbours. Our study bases itself on this remark made by the Indian prime minister and intends to explore the possibilities of having an optimum currency area in the South Asian region. We believe that the presently available literature on open currency areas gives a lot of insight into the relative advantages and disadvantages that an economy faces with its implementation. With the emergence of the European Union and the consequent adoption of the Euro this branch study has gained increased momentum. However, very little has been done to study the intricacies in determining whether similar models can be replicated in other areas, notably the Indian subcontinent which presents an entirely different set of problems and issues, many of which extend beyond the macro-economic principles into the realms of politics. Through this study we intend to pursue these concerns and form an opinion regarding the feasibility of having a common currency for the region.