This paper examines whether the SAARC countries satisfy the criteria to establish an optimal currency area. Some criteria of the test indicates some positive relations i.e. the existence of positive shocks in larger economies like India, Sri Lanka and Pakistan and labor mobility between countries like India, Nepal and Bangladesh. The paper shows need for more economic cooperation and suggests areas where economic cooperation could bring mutual benefits to all the members. This paper argues that the formation of a common currency in the area could only be possible by peace among countries like Pakistan and India which can be accrued through economic integration. The paper also compares this regions’ economic statistics with that of Western Europe and East Asia.
