The Prime Minister at a recent conference revealed his dream of a single currency for South Asia. Adopting the spirit in which the PM’s statement was made, let us lay out a road map for achieving a common currency by the end of this decade. The first step in this process is the granting of MFN status by Pakistan to India and the signing of a framework agreement for the formation of SAFTA. This can be achieved during 2004 if Pakistan follows the precedent established by the USA in rechristening MFN as Permanent Normal Trading Status before granting it to China some years ago. The likely conclusion of a Comprehensive Cooperation agreement between India & Sri Lanka in 2004 covering Services, FDI and temporary migration of professionals will improve the atmosphere further. An Indo-Bangladesh FTA is then a possibility by 2005 with Sri Lanka convincing Bangladesh about the asymmetric benefits that have accrued to it from the FTA, as demonstrated by a SANEI research study. This will allow the formation of SAFTA by 2006 as these countries (SL,Bd) convince Pakistan of how much it has to gain and how little to loose (as any gains to India are at the cost of Japan and other exporters). Though not an essential next step, it would be helpful if SAFTA is followed in 2007 by a comprehensive co-operation agreement under the newly created SAFTA to include services, FDI and skilled migration.
2008 will see three preparatory steps (am I dreaming?): (a) the formation of a S Asian currency fund for mutual aid in case of a BOP crisis in any country. (b) An agreement for harmonization of monetary and exchange rate management policies. (c) Removal of all restrictions on capital flows within the region. The final pre-requisite can then be completed in 2009 by the formation of a Customs Union with a common uniform external tariff of 5% to 10%. The common currency (S. Asian Rupee/Rupiah/Taka) can then be adopted/introduced in 2010-11.
Will this be of benefit to the people of S. Asia? Without any doubt! Is this sequence of events possible? Yes, if the five members of the Security Council decide that it is in their own interests and make this clear to every country in S. Asia. Is it likely? No.