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NO to ¥E$? Enhancing Economic Integration in East Asia through Closer Monetary Cooperation

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Author Info

  • Lamberte, Mario B.
  • Milo, Melanie S.
  • Pontines, Victor

Abstract

This paper has reviewed four major developments in the last 30 years: the collapse of the Bretton Woods arrangements; deepening of economic integration worldwide; the frequency and severity of the crises that affected not only developing economies but developed economies as well; and the formation of the Euroland. Against this background was the increasing intra-regional trade and investment in East Asia. Existing empirical studies generally show that East Asia has satisfied the economic criteria for an optimum currency area. This implies that East Asia will benefit from having a common monetary arrangement. However, this requires a strong political commitment, which admittedly is absent in East Asia at the moment. Should East Asia be able muster enough political will to go ahead with deeper economic integration, then it must also prepare itself for monetary integration. The paper then went on to review and assess the strengths and weaknesses of five possible common monetary arrangements for East Asia that can contribute to the stability of the financial system in the region and support the deepening of economic integration in the region. The best arrangement for a more integrated East Asian region is the East Asian common currency union, with the regional currency independently floating vis-à-vis other currencies in the world. However, given the present economic and political realities in East Asia, this arrangement should be considered as a long-term goal that should be accomplished over 2 or 3 decades. In the interim, it is better for East Asia to agree on a regional currency basket system consisting of the yen, the euro and the US dollar. During this transition period, East Asian economies should strive to work on the following pre-conditions: strengthening central bank independence, enhancing wage and price flexibility, strengthening the financial sector, and harmonizing monetary policy. The emerging arrangements under the CMI and the expanded ASEAN Surveillance Process are a constructive sign that East Asian economies can work together to advance their common interests. Success in these arrangements will eventually lead to greater monetary cooperation in the region.

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Bibliographic Info

Paper provided by Philippine Institute for Development Studies in its series Discussion Papers with number DP 2001-16.

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Length: 61
Date of creation: 2001
Date of revision:
Handle: RePEc:phd:dpaper:dp_2001-16

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Related research

Keywords: trade reforms; investment;

References

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  1. Bayoumi, Tamim & Eichengreen, Barry & Mauro, Paolo, 2000. "On Regional Monetary Arrangements for ASEAN," Journal of the Japanese and International Economies, Elsevier, vol. 14(2), pages 121-148, June.
  2. Wendy Dobson, 2001. "Deeper Integration in East Asia: Regional Institutions and the International Economic System," The World Economy, Wiley Blackwell, vol. 24(8), pages 995-1018, 09.
  3. Barry Eichengreen & Ricardo Hausmann, 1999. "Exchange Rates and Financial Fragility," NBER Working Papers 7418, National Bureau of Economic Research, Inc.
  4. John Williamson, 2000. "Exchange Rate Regimes for Emerging Markets: Reviving the Intermediate Option," Peterson Institute Press: Policy Analyses in International Economics, Peterson Institute for International Economics, number pa60, November.
  5. Glick, R., 2000. "Fixed or Floating: Is It Still Possible to Manage in the Middle?," Papers pb00-02, Economisch Institut voor het Midden en Kleinbedrijf-.
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  7. Guillermo A. Calvo & Enrique G. Mendoza, 1999. "Regional Contagion and the Globalization of Securities Markets," NBER Working Papers 7153, National Bureau of Economic Research, Inc.
  8. Robert Mundell, 2000. "Currency Areas, Exchange Rate Systems and International Monetary Reform," CEMA Working Papers: Serie Documentos de Trabajo. 167, Universidad del CEMA.
  9. Hausmann, Ricardo & Panizza, Ugo & Stein, Ernesto, 2001. "Why do countries float the way they float?," Journal of Development Economics, Elsevier, vol. 66(2), pages 387-414, December.
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  11. Michael A. Kouparitsas, 1999. "Is the United States an optimal currency area?," Chicago Fed Letter, Federal Reserve Bank of Chicago, issue Oct.
  12. Reinhart, Carmen & Calvo, Guillermo, 2002. "Fear of floating," MPRA Paper 14000, University Library of Munich, Germany.
  13. Jeffrey A. Frankel, 1999. "No Single Currency Regime is Right for All Countries or At All Times," NBER Working Papers 7338, National Bureau of Economic Research, Inc.
  14. Kawai, Masahiro & Takagi, Shinji, 2000. "Proposed strategy for a regional exchange rate arrangement in post-crisis East Asia," Policy Research Working Paper Series 2503, The World Bank.
  15. Junichi Goto & Koichi Hamada, 1994. "Economic Preconditions for Asian Regional Integration," NBER Chapters, in: Macroeconomic Linkage: Savings, Exchange Rates, and Capital Flows, NBER-EASE Volume 3, pages 359-388 National Bureau of Economic Research, Inc.
  16. Willem H. Buiter, 2000. "Is Iceland an Optimal Currency Area?," Economics wp10, Department of Economics, Central bank of Iceland.
  17. Lafrance, Robert & St-Amant, Pierre, 1999. "Optimal Currency Areas: A Review of the Recent Literature," Working Papers 99-16, Bank of Canada.
  18. Marion Kohler, 1998. "Optimal currency areas and customs unions: are they connected?," Bank of England working papers 89, Bank of England.
  19. Barry Eichengreen and Tamim Bayoumi., 1996. "Is Asia an Optimum Currency Area? Can It Become One? Regional, Global and Historical Perspectives on Asian Monetary Relations," Center for International and Development Economics Research (CIDER) Working Papers C96-081, University of California at Berkeley.
  20. Honohan, P. & Lane, P.R., 2000. "Will the Euro Trigger More Monetary Unions in Africa?," Research Paper 176, World Institute for Development Economics Research.
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  22. Eiji Ogawa & Takatoshi Ito, 2000. "On the Desirability of a Regional Basket Currency Arrangement," NBER Working Papers 8002, National Bureau of Economic Research, Inc.
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  25. Charles Wyplosz, 1997. "EMU: Why and How It Might Happen," Journal of Economic Perspectives, American Economic Association, vol. 11(4), pages 3-21, Fall.
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Cited by:
  1. Harvie, Charles & Lee, Hyun-Hoon, 2002. "New Regionalism in East Asia: How Does It Relate to the East Asian Economic Development Model?," Economics Working Papers wp02-10, School of Economics, University of Wollongong, NSW, Australia.

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