What next with NIFA? evidence of currency divergence in South Asia

Abstract

Introduction

The global financial crisis in 2007/08 was considered as one of the worst economic crisis in the world. It paralyzed lots of economic activities in the world and generated negative results after the Great Depression1in1929/30s. The crisis played a major role in the failure of key businesses and declines in consumer wealth in trillions of U.S. dollars. Therefore, lot of intellectual as well as public discussions takes place in various countries to identify the key issues behind this crisis.

New International Financial Architecture (NIFA) becomes a one of popular topics among those discussions. According to the ‘Report of the Task Force of the Executive Committee on Economic and Social Affairs of the United States’ in 1999, NIFA was introduced as a framework to prevent financial crisis. Maintaining the dominance of U.S. dollar as world currency and capital account liberalization are two major aspects of NIFA. It exerts pressure on subordinate regions such as South Asia to peg their currency below the value of U.S. dollar (Wade,2008).

However, NIFA failed to defend the capitalist giant; U.S from financial crisis in 2007/08. As a result of that adverse fallouts from the crisis were damaged the economies of both developed and least developed countries in the world (Crotty,2009). Therefore, subordinate regions such as South Asia needs to think of their own way to prevent from such destructive neo-liberalize waves .Some of economists have done several studies to identify the relevance and challenges behind the currency convergence in South Asia (Khalid and Rajaguru, 2004; Chowdhury et al., 2008; Mohsin, 2011). However no specific study is done to examine the effects of NIFA on currency convergence. Therefore this study focuses on the effects of NIFA on the monetary integration of the region.