Monetary and Financial Cooperation among Central Banks in East Asia and the Pacific
In this paper we show that monetary policy frameworks in the East Asia and Pacific region are heterogeneous, with exchange rate policies being subordinate to domestic price stability objectives in most regional economies. We then argue that in this environment it is undesirable to focus regional cooperation on exchange rate policies because of the risk of creating conflicts with domestic objectives that would lead to loss of central bank credibility and possibly speculative attacks. We also argue that the case for coordinated exchange rate policies is in fact weak, even after taking into account the region¡¦s traditional emphasis on export performance and increasing regional trade integration. Rather than focusing cooperation on the setting of policy instruments, we suggest an alternative that centres on developing more liquid financial markets in the region in the foreseeable future, and on harmonising the objectives of monetary policy and designing institutions that could form the basis of deeper forms of cooperation in the longer-term future.
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