Asian Currency Unit (ACU): History, Purpose & Why It Failed

What Was the Asian Currency Unit (ACU)?

The Asian Currency Unit (ACU), also known as the Asian Monetary Unit (AMU), was a proposed basket of Asian currencies, similar to the European Currency Unit, which was the precursor of the euro common currency. Today, the ACU remains an academic project with no real traction among Asian governments, nor much popular support among its citizens.

Key Takeaways

• The Asian Currency Unit (ACU) was a proposal led by the Asian Development Bank intended to foster a common currency region in Asia.
• The goal of the ACU was to promote greater free trade and financial flows among Asian countries and loosen the region's dependence on the U.S. dollar. 
• While still being explored, the ACU has not yet found any real traction among Asian governments.

Understanding the Asian Currency Unit (ACU)

The goal of the ACU was to promote greater free trade and financial flows among Asian countries and loosen the region's dependence on the U.S. dollar. The Asian Development Bank (ADB) is responsible for exploring the feasibility and construction of the currency basket along with Japan's Research Institute on Economy, Trade, and Industry (RIETI).

The ACU is a proposed currency basket for the currencies of Asian countries that would include China, Japan, South Korea, Indonesia, Malaysia, and Singapore. In particular, it would serve as a common currency basket composed of 13 East Asian currencies, such as ASEAN 10 plus Japan, China, and South Korea.

The ASEAN (Association of Southeast Asian Nations) is a regional organization of 10 Southeast Asian and Pacific Rim countries whose governments collaborate to promote socio-cultural, economic, and political advancement in the region. Other proposals have called for the ACU to also include Hong Kong and New Zealand.

The rationale for ACU was that it could be used as a means of enhancing internal exchange rate stability if the regional central banks begin to stabilize their respective currencies to the ACU unit, thus helping reduce the possibility of regional competitive devaluations, where one country strategically devalues its currency in response to another country's own devaluation.

The notion of stabilization via an internal basket similar to Europe’s Exchange Rate Mechanism (ERM) is distinct from stabilization using an external unit, which would require that the ACU, in turn, be pegged in some way to external currencies such as the US dollar or euro, or to some external basket.

There have been a number of financial instruments that use baskets of Asian currencies, but these are individually constructed and are not sponsored or used as a means of exchange in the countries represented. But, there were obstacles preventing the creation of an official Asian Currency Unit, including severe misalignments between the various regional currencies that would have been involved.

The ACU Basket

The proposed ACU basket includes 13 currencies:

ACU Component Currencies Country Currency Brunei Brunei dollar Cambodia Cambodian riel China Chinese Yuan (Renminbi) Indonesia Indonesian rupiah Japan Japanese yen Laos Lao kip Malaysia Malaysian ringgit Myanmar Burmese kyat Philippines Philippine peso Singapore Singapore dollar South Korea South Korean won Thailand Thai baht Vietnam Vietnamese đồng