Pacific island countries: possible common currency arrangement, Issues 2006-2234
Christopher Browne, David William Harold Orsmond, International Monetary Fund. Asia and Pacific Dept
International Monetary Fund, Asia and Pacific Dept., 2006 - Business & Economics - 18 pages
This paper examines the potential advantages and disadvantages of adopting a common currency arrangement among the six IMF member Pacific island countries that have their own national currency. These countries are Fiji, Papua New Guinea, Samoa, Solomon Islands, Tonga, and Vanuatu. The study explains that the present exchange rate regimes-comprising pegging to a basket of currencies for five countries and the floating arrangement for Papua New Guinea-have generally succeeded in avoiding inflationary, balance of payments, external debt, and financial system problems. The study concludes that adopting a common currency in the Pacific would require greater convergence of domestic policies and substantial strengthening of regional policies, which would take time to achieve.
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adopt a common adverse external conditions anchor country Australian dollar balance of payments basket of currencies budget deficits Caribbean Currency Union common currency area common currency arrangement convergence currency basket currency board arrangement devaluations Eastern Caribbean Currency Economic and Monetary economic growth euro zone exchange controls exchange rate adjustment exchange rate policies exchange rate regime exports external and domestic external debt fiscal discipline fiscal policy flexibility fluctuate foreign Furthermore Gulf Cooperation Council increase institutional arrangements interest rates last resort facility legal tender limited loss of national major trading partners monetary and exchange monetary policy Monetary Union nominal exchange rate Pacific island countries Papua New Guinea potential advantages pressures private sector regional central bank regional currency regime regional currency union regional integration revenue Samoa six countries Solomon Islands stable macroeconomic tightening of exchange Tonga trade flows transaction costs U.S. dollar Vanuatu vulnerability WAEMU wide-ranging structural reform Zealand dollar