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Exchange-Rate Arrangements and Financial Integration in East Asia: On a Collision Course?

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  • Hans Genberg

    (Hong Kong Monetary Authority)

Abstract

Financial integration in Ease Asia is actively being pursued and will in due course lead to substantial mobility of capital between economies in the region. Plans for monetary cooperation as a prelude to monetary integration and ultimately monetary unification are also proposed. These plans often suggest that central banks should adopt some form of common exchange rate policy in the transition period towards full monetary union. This paper argues that this is a dangerous path in the context of highly integrated financial markets. An alternative approach is proposed where independent central banks coordinate their monetary policies through the adoption of common objectives and by building an appropriate institutional framework. When this coordination process has progressed to the point where interest rate developments are similar across the region, and if in the meantime the required institutional infrastructure has been build, the next step towards monetary unification can be taken among those central banks that so desire. The claim is that this transition path is likely to be robust and will limit the risk of currency crises.

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File URL: http://www.bankofgreece.gr/BogEkdoseis/Paper200641.pdf
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Bibliographic Info

Paper provided by Bank of Greece in its series Working Papers with number 41.

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Length: 43 pages
Date of creation: May 2006
Date of revision:
Handle: RePEc:bog:wpaper:41

Note: On February 24-25, 2006 an international workshop on “Regional and International Currency Arrangements” was held in Vienna. It was co-sponsored by the Oesterreichische Nationalbank and the Bank of Greece, and jointly organized by Eduard Hochreiter and George Tavlas. Academic economists and researchers from central banks and international organizations presented and discussed current research, and reviewed and assessed the past experience with, and the future challenges of, international currency arrangements. A number of papers and the contributions by the discussants presented at this workshop are being made available to a broader audience in the Working Paper series of the Bank of Greece and simultaneously also in the Working Paper Series of the Oesterreichische Nationalbank. The papers and the discussants’ comments will be published in the journal, International Economics and Economic Policy. Here we present the third of these papers. (The previous two were issued as Bank of Greece Working Papers No. 39 and 40.) In addition to the paper by Hans Genberg, the Working Paper also contains the contributions of the discussants, Jim Dorn and Eiji Ogawa.
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Keywords: Regional and International Currency Arrangements;

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References

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Citations

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Cited by:
  1. John Williamson, 2006. "A Worldwide System of Reference Rates," Working Papers 45, Bank of Greece.
  2. Stephen G. Hall & Pavlos Petroulas, 2008. "Spatial Interdependencies of FDI Locations: A Lessening of the Tyranny of Distance?," Discussion Papers in Economics 08/28, Department of Economics, University of Leicester.
  3. Hwee Kwan Chow & Peter N. Kriz & Roberto S. Mariano & Augustine H. H. Tan, 2007. "Financial Liberalization and Monetary Policy Cooperation in East Asia1," Finance Working Papers 21916, East Asian Bureau of Economic Research.
  4. Friedrich L. Sell, 2007. "Anticipated effects of foreign currency reserve diversification in Asian countries: Do China and India matter for coordination?," CESifo Forum, Ifo Institute for Economic Research at the University of Munich, vol. 8(1), pages 32-38, 04.
  5. Marvin Goodfriend, 2007. "Monetary Policy in East Asia: Common Concerns," IMES Discussion Paper Series 07-E-18, Institute for Monetary and Economic Studies, Bank of Japan.
  6. Alexandros E. Milionis, 2006. "An Alternative Definition of Market Efficiency and some Comments on its Empirical Testing," Working Papers 50, Bank of Greece.
  7. Andreas S. Andreou & George A. Zombanakis, 2006. "Computational Intelligence in Exchange-Rate Forecasting," Working Papers 49, Bank of Greece.
  8. Panagiotis Chronis & Aspassia Strantzalou, 2008. "Monetary and Fiscal Policy Interaction: What is the Role of the Transaction Cost of the Tax System in Stabilisation Policies?," Working Papers 71, Bank of Greece.

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