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Exchange-rate arrangements and financial integration in East Asia: on a collision course?

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  • Hans Genberg

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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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Suggested Citation

  • Hans Genberg, 2006. "Exchange-rate arrangements and financial integration in East Asia: on a collision course?," International Economics and Economic Policy, Springer, vol. 3(3), pages 359-377, December.
  • Handle: RePEc:kap:iecepo:v:3:y:2006:i:3:p:359-377 DOI: 10.1007/s10368-006-0066-0
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    Cited by:

    1. Marvin Goodfriend, 2007. "Monetary Policy in East Asia: Common Concerns," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 25(S1), pages 207-232, December.
    2. Pontines, Victor, 2015. "How useful is an Asian Currency Unit (ACU) index for surveillance in East Asia?," Economic Systems, Elsevier, vol. 39(2), pages 269-287.
    3. John Williamson, 2006. "A worldwide system of reference rates," International Economics and Economic Policy, Springer, pages 341-352.
    4. Woosik Moon & Yeongseop Rhee, 2012. "Asian Monetary Integration," Books, Edward Elgar Publishing, number 14191, September.
    5. 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.
    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. Hwee Kwan Chow & Peter Nicholas Kriz & Roberto S. Mariano & Augustine H H Tan, 2007. "Financial Liberalization and Monetary Policy Cooperation in East Asia," Working Papers 03-2007, Singapore Management University, School of Economics.
    8. George S. Tavlas, 2009. "The Benefits And Costs Of Monetary Union In Southern Africa: A Critical Survey Of The Literature," Journal of Economic Surveys, Wiley Blackwell, pages 1-43.
    9. Stephen G. Hall & Pavlos Petroulas, 2008. "Spatial Interdependencies of FDI Locations: A Lessening of the Tyranny of Distance?," Working Papers 67, Bank of Greece.
    10. repec:wsi:ceprxx:v:03:y:2014:i:02:n:s1793969014500095 is not listed on IDEAS
    11. Petroulas, Pavlos, 2007. "The effect of the euro on foreign direct investment," European Economic Review, Elsevier, pages 1468-1491.
    12. Stephen G. Hall & Pavlos Petroulas, 2008. "Spatial Interdependencies of FDI Locations: A Lessening of the Tyranny of Distance?," Working Papers 67, Bank of Greece.
    13. Hans Genberg, "undated". "Financial Integration in ASIA," Working Papers wp22, South East Asian Central Banks (SEACEN) Research and Training Centre.
    14. 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 - Leibniz Institute for Economic Research at the University of Munich, vol. 8(1), pages 32-38, April.

    More about this item

    JEL classification:

    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F15 - International Economics - - Trade - - - Economic Integration
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions

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