In recent years dynamic debate has emerged on the desirability and feasibility of creating
a currency union in East Asia. While the debate has relied heavily on the theory of optimum
currency areas, this theory has weaknesses in explaining the actual formation of currency
unions. At this point, political economic analysis appears to demonstrate stronger explanatory
power. This paper provides a systematic review of the main developments in the literature on
optimum currency area theory and of those in the political economy literature on currency
union. Additionally, this paper addresses the feasibility of an East Asian currency union, by
applying the findings in the two academic strands to the region. It finds that even though East
Asia may be to some extent a feasible candidate for a currency union from an economic
perspective, the region’s political situation does not appear favorable for creation of one.