A single currency for Pacific Island countries : an SVAR analysis

Abstract

Interest in monetary integration of Pacific Island countries (PICs) received a major boost in March 2003 when an Australian Senate Committee (2003) made a recommendation of far reaching nature toward ushering in a Pacific Economic and Political Community. The Senate Committee, which studied Australia’s relations with the PICs, suggested adoption of the Australian dollar as the common currency. Earlier, the successful introduction of the euro in Europe, just before the new millennium began was an inspiration to PIC leaders. As a result, two major initiatives were launched in 2002: one aimed at introduction of free trade by 2010 amongst PICs and the other at promoting closer economic relations with possibilities of unhindered trade by 2015 with Australia and New Zealand. Gradual trade liberalisation over the next few years and free trade among PICs in the first instance were considered as stepping stones for promoting the goal of regional economic integration. This discussion paper considers a single currency for Pacific Island countries, economic integration, and monetary union.