OCA INDEX AS INDICATOR OF THE CZECH REPUBLIC'S PREPAREDNESS TO JOIN THE EUROPEAN MONETARY UNION

The optimum currency area (OCA) theory evaluates the currency area as optimum at a time when the participating countries are not at risk of macroeconomic instability due to the existence of a common currency. The OCA index is a tool used to comprehensively assess the costs and benefits of a candidate for joining a monetary union. It is constructed as a bilateral index assessing the appropriateness of introducing the single currency in two countries. The article presents the OCA index quantified for the Czech Republic in relation to Germany, which is considered to be the core of the European Monetary Union. Since the OCA index needs to be interpreted in a temporal or spatial comparison, the calculation of the OCA index was also performed for other countries of the Visegrad Group (V4) and furthermore for Austria and Portugal, using data from the period of 2007–2019. The results of the OCA index show a high degree of variability in the Czech Republic in the observed period. While in the first half of the period under review, the Czech Republic achieved the best results within the assessed economies and the Czech Republic's level of preparedness for the common currency with Germany was higher than in the case of Austria, it fell sharply after 2012. The reason can be seen, among other things, in the higher growth rate of the Czech economy than in the euro area. Although the OCA index is an indicator assessing the preparedness of an economy to join a monetary union, it cannot be the only indicator. Other important criteria include, for example, labour mobility, price and wage flexibility, fiscal integration and more. Although the Czech Republic is approaching the euro area average in all key indicators, the gap from it remains significant for most indicators and thus continues to be a factor against the adoption of the euro in the coming years.

ASEAN as an Optimal/Nonoptimal Currency Area

Economists have been arguing to this day about the benefits and risks of introducing a community currency. It is very difficult to clearly determine which side is right. Most often, scientists refer to the example of the so-called Eurozone, but it is still far from reaching an agreement between supporters and opponents of such a solution. This paper presents the issues of monetary integration in ASEAN+3 (i.e. ASEAN member countries, China, South Korea, and Japan) in terms of the optimal currency area and other necessary conditions for the creation of a sustainable development region. The researchers argue about whether ASEAN+3 should introduce a single currency. Some suggest that the group meets several OCA theory criteria, i.e. labour mobility and economic openness. According to the results of the study, ASEAN+3 is an economically diverse area and there is a lack of institutions enabling effective monetary integration in the short term. Optimization assumptions included in the analysis determine the real chances of development and survival within the currency area. The author's analysis has indicated that ASEAN+3 should not introduce a single currency for three reasons: failure to meet the optimization criteria, diversification of socio-economic development, lack of an institutional framework and inconsistency in the perception of monetary integration. On the other hand, it should be noted that a single currency could contribute to increasing the monetary security of the entire South-East Asian region, which means that the ​​monetary integration may be a long-term idea.

Frankel and Rose’s Introduction to the Endogeneity of Optimality: A Model Limited to the European Monetary Experience

This article discusses Frankel and Rose’s (1997, 1998) introduction to endogeneity, which was the result of scrutinizing the optimal currency area (OCA) theory through the evaluative lens of European monetary integration and unification in the 1990s. It cannot be generalized to another monetary union. The development of endogeneity interrelates five different criteria (common currency; transaction costs; commercial integration; economic convergence; and diversification of production) to argue that the introduction of a common currency leads to economic convergence among the participating countries. Frankel and Rose’s choice of analytic criteria arises from empirical studies on European monetary unification, following the OCA framework. The empirical studies found to have influenced the authors can be divided into three themes: the microeconomic benefits of a common currency; the optimality of European countries; and adjustment mechanisms. However, as shown by the selection of certain criteria, the influence of the Emerson report (1990), and the price-stability orientation of fiscal and monetary policies, their proposal only works within the monetary and economic conditions of the future eurozone area.

Is the GCC an optimum currency area (OCA)? Empirical answers from co-movements

Purpose This paper aims to investigate whether the Gulf Cooperation Council (GCC) is an optimum currency area in the wake of the global financial crisis and low oil prices using annual data from 2000 to 2016. Design/methodology/approach It applies the European Monetary Union as a reference point and co-movement methodology on key variables such as gross domestic product, inflation, terms of trade and current account balance. The findings revealed that all countries meet the macroeconomic convergence criteria and there is greater co-movement of these variables in the GCC. Findings Furthermore, the degree of co-movements increases during the financial crisis and recent low oil prices, which signifies the synchronization of shocks. However, labor is less mobile in the region and current account balance co-movement is relatively weak, but with the endogeneity of a monetary union, these constraints will evaporate as the zone enters monetary unification. The paper recommends that for the GCC monetary union to happen and be sustainable, there needs to be political will. The paper also recommended for the zone to have a common identification card so that nationals can move and work freely within the GCC region. Originality/value The study defers from the others in the following: this paper considered shock synchronization and co-movement methodology, which has not been applied in the region to assess its feasibility as an OCA.

Pembentukan Mata Uang Tunggal Kawasan ASEAN

Financial integration is the last step that can be done to achieve economic integration. One condition that must be met before the implementation of financial integration is the existence of the optimal currency area (OCA) criteria. The purpose of this study: 1) to find out the closeness of the currency to changes in the bilateral exchange rate as a supporter in the possibility of forming a single currency in the ASEAN region, 2) to analyze the chosen anchor currency which has a positive influence (appreciation) on the local currency of the ASEAN region as a currency single money region. This study uses annual real output data, size of GDP ratio, bilateral trade, differences in the composition of trade, and the exchange rate throughout of 1995-2018 period. The analytical method used is panel data test. The results showed that the currencies of ASEAN countries did not yet have the closeness of forming a single currency in the ASEAN region. Meanwhile, to determine the appropriate anchor currency to be used as a shared currency, namely SGD (Singapore Dollar) empirically has a positive influence (appreciation) in the ASEAN region compared to RMB, JPY, Euro, or USD. Therefore SGD can be proposed as an anchor currency for ASEAN countries.