Prospects for Monetary Cooperation and Integration in East Asia

by Volz, Ulrich; Hamada, Koichi

• ISBN13: 9780262013994
• ISBN10: 0262013991
• Format: Hardcover
• Copyright: 2010-04-23
• Publisher: Mit Pr

Summary

East Asian countries were notably uninterested in regional monetary integration until the late 1990s, when the Asian financial crisis revealed the fragility of the region's exchange rate arrangements and highlighted the need for a stronger regional financial architecture. Since then, the countries of East Asia have begun taking steps to explore monetary and financial cooperation, establishing such initiatives as regular consultations among finance ministers and central bank governors and the pooling of foreign exchange reserves. In this book, Ulrich Volz investigates the prospects for monetary cooperation and integration in East Asia, using state-of-the-art theoretical and empirical tools to analyze the most promising policy options. Volz points out that monetary cooperation can be defined broadly to include options ranging from informal policy consultations to European-style monetary union. He recommends a gradual approach toward monetary integration in East Asia, one that pursues less extensive forms of monetary cooperation before tackling such highly challenging projects as a regional exchange rate system or a regional monetary union. The simpler, less demanding forms of policy coordination would, Volz argues, allow East Asian countries to develop an integrationist spirit and gain experience in cooperation. Monetary integration is not an end in itself, Volz reminds us, but a means to promote economic and financial development and create a stable macroeconomic environment that is conducive to investment and growth. After providing an in-depth analysis of the costs and benefits of monetary integration, Volz examines different options for East Asian countries. He then proposes a strategy whereby countries first opt for a managed float of exchange rates guided by a regional currency basket into which an "Asian currency unit" is introduced as a virtual parallel currency to circulate alongside national currencies.

Author Biography

ULRICH VOLZ is Senior Economist at the German Development Institute.

Table of Contents

List of Abbreviations	p. vii
Acknowledgments	p. xi
Foreword	p. xv
Introduction	p. 1
The Forces behind Monetary Cooperation and Integration
The Instability of the International Monetary System and the Regionalization of Money	p. 9
The Asian Financial Crisis	p. 21
The Rise of China	p. 41
Costs and Benefits of Monetary Integration
The Standard Approach	p. 49
The Theory of Optimum Currency Areas
A Reconsideration of Costs and Benefits	p. 103
Strategies for Monetary Integration in East Asia
Current Monetary Arrangements in East Asia	p. 143
Exchange Rate Options for East Asia	p. 157
Inflation Targeting across the Region	p. 161
A Regional Exchange Rate System for East Asia?	p. 167
Lessons of the European Monetary System
Basket Strategies for East Asia	p. 187
Reflections on Monetary Integration in East Asia	p. 203
Past, Present, and Future
Notes	p. 217
References	p. 241
Annexes	p. 267
Index	p. 313
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