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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, Hong Kong Institute for Monetary Research)

Abstract

Financial integration in East 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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Bibliographic Info

Paper provided by Hong Kong Institute for Monetary Research in its series Working Papers with number 152006.

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Length: 23 pages
Date of creation: Nov 2006
Date of revision:
Handle: RePEc:hkm:wpaper:152006

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Citations

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Cited by:
  1. Alexandros E. Milionis, 2006. "An Alternative Definition of Market Efficiency and some Comments on its Empirical Testing," Working Papers 50, Bank of Greece.
  2. John Williamson, 2006. "A Worldwide System of Reference Rates," Working Papers 130, Oesterreichische Nationalbank (Austrian Central Bank).
  3. 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.
  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. 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.
  7. Andreas S. Andreou & George A. Zombanakis, 2006. "Computational Intelligence in Exchange-Rate Forecasting," Working Papers 49, Bank of Greece.
  8. 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.

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