Is a Monetary Union Feasible for D-8 Countries? An Examination in The Framework of The Optimum Currency Area
Mervan Selçuk, Şakir GörmüşA monetary union means ensuring unity in exchange rates, eliminating all restrictions on capital movements, and realizing convertibility among member countries. Although this concept is not new, the establishment of the European Monetary Union has led to renewed interests. Applying the European member countries’ experience and knowledge on this subject is crucial for the economic stability and development of Islamic countries. Using the quarterly data of the exchange rate, inflation, interest rate, and trade during 2000–2020, our study tests whether the D-8 is an optimum currency area. Based on the results of the vector error correction model, the impulse response function, and the variance decomposition, it has been determined that the D-8 as a whole is not an optimum currency area. However, Turkey, Nigeria, Egypt, and Malaysia, considered as a subgroup within the D-8, experience relatively similar shocks to their exchange rates, inflation, interest rates, and trade, as compared with the rest of the D-8. Although these countries are geographically fragmented and distant, their theoretical monetary union would be an optimum currency area in terms of the symmetry of their shocks.
D-8 Ülkeleri Arasında Parasal Birlik Mümkün Mü? Optimum Para Sahası Çerçevesinde İncelenmesi
Mervan Selçuk, Şakir GörmüşParasal birlik, döviz kurlarında birliğin sağlanmasını, sermaye hareketlerinde tüm kısıtlamaların kaldırılmasını, üye ülkeler arasında konvertibilitenin gerçekleştirilmesini ifade etmektedir. Parasal birlik kavramı uzun zamandan beri tartışılsa da Avrupa Para Birliği’nin kurulması bu kavrama olan ilginin artmasına neden olmuştur. Avrupa ülkelerinin yaşadığı tecrübe ve üye ülkelerin bu konudaki bilgi birikiminin İslam ülkelerine aktarılması İslam ülkelerinin ekonomik istikrarı ve gelişimi açısından önemlidir. Çalışmamızda Gelişen Sekiz Ülke olarak ifade edilen D-8 ülkelerinin optimum para sahası olup olmadığını yani bir parasal birlik potansiyeli taşıyıp taşımadığı test edilmiştir. Bunun için 2000 ile 2020 yılları arasındaki çeyreklik döviz kuru, enflasyon, faiz ve dış ticaret verileri kullanılarak D-8 ülkelerinin yaşadığı şokların birbirine benzeyip benzemediği Vektör Hata Düzeltme modeli (VECM), EtkiTepki Fonksiyonu ve Varyans Ayrıştırma analizi vasıtasıyla incelenmiştir. Ülkelerin kendi aralarında başarılı ve sürdürülebilir bir parasal birlik kurmaları için ekonomik göstergelerinin birbirleriyle yakınlaşması veya benzerlik göstermesi gerekmektedir. VECM, Etki-Tepki Fonksiyonu ve Varyans Ayrıştırma analizi sonuçları beraber incelediğimizde; D-8 ülkelerinin tamamının optimum para sahası açısından uygun olmadığı fakat D-8 içerisinde bir alt grup olarak düşünülebilecek Türkiye, Nijerya, Mısır ve Malezya’nın diğer D-8 ülkelerine oranla, ilgili değişkenlerinde meydana gelen şokların benzer olduğu tespit edilmiştir. Bu ülkeler her ne kadar coğrafi olarak birbirine yakın olmasa da tesis edilecek parasal birlikte şokların simetrik olma kriteri açısından optimum para sahasının gerekliliklerini yerine getirebilecektir.
Globalization movements and exchange rate fluctuations deeply affect fragile economies and pose risks. Countries have developed various policies to eliminate this exchange rate risk. A monetary union, which is formed by a group of countries, is a crucial tool against the exchange rate risk. This has many benefits, such as the reduction of transaction costs, encouragement of international trade, elimination of exchange rate uncertainty, reduction of information costs, prevention of speculative capital movements, and creation of price transparency. These further benefit consumers and producers. A monetary union also provides microeconomic efficiency because it facilitates price comparison. Therefore, the prices of the member states of the union are expected to converge. Moreover, a monetary union will inevitably create some costs and disadvantages for the member countries. These disadvantages include a loss of national monetary policy independence, imbalances between member countries, problems caused by demand changes, inability to meet unemployment-inflation targets, and deprivation of national seigniorage income.
The Optimum Currency Area theory provides two sets of measures that would maximize economic efficiency for an entire region to enable the use of a single currency. The first one is the mitigation of exposure to asymmetric shocks through the similarity of economic structures, openness of trade, and low degree of specialization. The second group is easing adjustment to asymmetric shocks through preference homogeneity, factor mobility, and transfer payments. With this in consideration, the Maastricht criteria are based on economic indicators that European Union member countries must fulfill to get into the European currency area and that they must ensure to maintain once got in the union. To establish a successful and sustainable monetary union, the economic indicators of the countries must converge and resemble each other. These indicators are inflation rates, budget deficit rates, public debt, and interest rates.
Although the concept of a monetary union is nothing new, the establishment of the European Monetary Union has led to renewed interest. Applying the European member states’ experience and knowledge on this subject is an crucial step for the economic stability and development of Islamic countries. Using quarterly data on the exchange rate, inflation, interest rate, and trade between 2000 and 2020, our study tests whether the D-8 is an optimum currency area. Based on the results of the vector error correction model, the impulse-response function, and the variance decomposition, it has been determined that the D-8 as a whole is not optimum currency area. However, Turkey, Nigeria, Egypt, and Malaysia, which can be considered as a subgroup within the D-8, experience relatively similar shocks to their exchange rates, inflation, interest rates, and trade, as compared with the rest of the D-8 countries. Therefore, although these countries are geographically fragmented and distant, their theoretical monetary union would be an optimum money field in terms of the symmetry of their shocks.
To adopt a new common currency among D-8 countries, they have to provide economic, political, and financial integration consistent with the relevant policies and meet specific conditions designed to ensure economic convergence. It should not be forgotten that longterm preparation, which took almost 10 years, laid the groundwork for a successful European Monetary Union. The example set by the European Monetary Union should serve as the template for D-8’s goal of a monetary union consisting of Islamic countries.
