This in turn, can cause differential effective overvaluation/undervaluation of the currency across different countries within a currency union and possible erosion of long-term competitiveness of affected countries. Relative to the Euro area, the Asian region exhibits much more pronounced diversity in economic structure, stages of development, demographic features, social and political systems and even lower mobility of factors of production, particularly labour.
The successful operation of any currency area is dependent on wage flexibility and labour mobility across regions. With the existence of a common external exchange rate, effective internal flexibility in the "exchange rate" for a particular region can be achieved by the lower or higher wages, as necessary, relative to the rest of the currency area.