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Posted on Jun 25, 2010 in STUDY

Dealing with Multiple Currencies in Transitional Economies: The Scope for Regional Cooperation in Cambodia, the Lao People’s Democratic Republic, and Viet Nam

The transitional economies of Cambodia, the Lao People’s Democratic Republic, and Viet Nam—the CLV countries—share monetary and financial systems characterized to various degrees by the use of multiple currencies, such as the US dollar or the Thai baht, in addition to each country’s domestic currency. Because there are costs as well as benefits associated with a multiple-currency system, national authorities need to assess the ramifications and adopt monetary strategies and exchange rate regimes in line with their development priorities.

While dealing with multiple currencies is ultimately an issue of national economic policy, the CLV countries could benefit from greater regional cooperation on monetary and financial issues. They would be able to exploit economies of scale, introduce best practices, and facilitate the adoption of common regulatory standards. Greater regional dialogue on monetary policy could also help the CLV countries find a solution to the so-called multiple-currency phenomenon and reap more benefits from their increasing regional economic interdependence.

This study, conducted by a team of economists from the Asian Development Bank, academics, and personnel from CLV finance ministries and central banks, explores the issues of multiple currencies and regional monetary cooperation among the economies of the Association of Southeast Asian Nations (ASEAN) in the context of increasing regional economic interdependence. It reviews the main issues related to the monetary and exchange rate policy decisions taken by CLV national authorities, and discusses the options and opportunities available for enhancing monetary and financial stability in the ASEAN region.

Source: ADB

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