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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.

Suggested Citation

  • Hans Genberg, 2006. "Exchange-Rate Arrangements and Financial Integration in East Asia: On a Collision Course?," Working Papers 152006, Hong Kong Institute for Monetary Research.
  • Handle: RePEc:hkm:wpaper:152006
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    References listed on IDEAS

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    1. Martin Schneider & Martin Spitzer, 2004. "Forecasting Austrian GDP using the generalized dynamic factor model," Working Papers 89, Oesterreichische Nationalbank (Austrian Central Bank).
    2. Eiji Ogawa & Junko Shimizu, 2005. "A Deviation Measurement for Coordinated Exchange Rate Policies in East Asia," Discussion papers 05017, Research Institute of Economy, Trade and Industry (RIETI).
    3. Harm Zebregs, 2004. "Intraregional Trade in Emerging Asia," IMF Policy Discussion Papers 04/1, International Monetary Fund.
    4. Ronald McKinnon & Gunther Schnabl, 2004. "The East Asian Dollar Standard, Fear of Floating, and Original Sin," Review of Development Economics, Wiley Blackwell, vol. 8(3), pages 331-360, August.
    5. Maria Teresa VALDERRAMA & Sylvia KAUFMANN, "undated". "Modeling Credit Aggregates," EcoMod2004 330600146, EcoMod.
    6. Robert Neil McCauley, 2006. "Understanding monetary policy in Malaysia and Thailand: objectives, instruments and independence," BIS Papers chapters,in: Bank for International Settlements (ed.), Monetary policy in Asia: approaches and implementation, volume 31, pages 172-198 Bank for International Settlements.
    7. Guonan Ma & Eli M Remolona, 2005. "Opening markets through a regional bond fund: lessons from ABF2," BIS Quarterly Review, Bank for International Settlements, June.
    8. Corrinne Ho & Guonan Ma & Robert N McCauley, 2005. "Trading Asian currencies," BIS Quarterly Review, Bank for International Settlements, March.
    9. Jesús Cuaresma & Ernest Gnan & Doris Ritzberger-Gruenwald, 2004. "Searching for the natural rate of interest: a euro area perspective," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 31(2), pages 185-204, June.
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    Cited by:

    1. 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.
    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. 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. Már Gudmundsson, 2008. "Near-Term Exchange Rate Flexibility In East Asia: Precursor To Regional Monetary Union?," Pacific Economic Review, Wiley Blackwell, vol. 13(1), pages 62-82, February.
    5. Woosik Moon & Yeongseop Rhee, 2012. "Asian Monetary Integration," Books, Edward Elgar Publishing, number 14191, April.
    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. repec:wsi:ceprxx:v:03:y:2014:i:02:n:s1793969014500095 is not listed on IDEAS
    8. Hans Genberg, "undated". "Financial Integration in ASIA," Working Papers wp22, South East Asian Central Banks (SEACEN) Research and Training Centre.

    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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