AMU and Monetary Cooperation in Asia

Regional monetary and financial cooperation among the monetary authorities of Asian countries have been further strengthening through the recent global financial crisis in 2007-2008. Finance Ministers and Central Bank Governors of the ASEAN Members States, People’s Republic of China (PRC), Japan and Korea (ASEAN plus three) and the monetary authority of Hong Kong, China announced that the Chiang Mai Initiative Multilateralization (CMIM) agreement came into effect on March 24, 2010. They also reached agreement on establishing a surveillance office, which is called an ASEAN plus three Macroeconomic Research Office (AMRO) and would ensure technical details of regional surveillance. The regional monetary cooperation in Asia has been discussed for years. For example, Ogawa and Shimizu (2005) proposed both an Asian Monetary Unit (AMU), which is a common currency basket computed as a weighted average of the thirteen ASEAN plus three currencies, and AMU Deviation Indicators (AMU DIs), which indicates deviation of each Asian currency in terms of the AMU compared with the benchmark rate. The AMU and the AMU DIs are considered as both surveillance measures under the Chiang Mai Initiative and coordinated exchange rate policies among Asian countries. In this paper, we show that monitoring the AMU and the AMU DIs plays an important role in the regional surveillance process under the CMIM. By using daily and monthly data of AMU and AMU DIs in the period between January 2000 to June 2010, which are available in a website of the Research Institute of Economy, Trade, and Industry (RIETI), we examine their usefulness as a surveillance indicator. Our studies of AMU and AMU DIs confirm as follows: First, an AMU peg system stabilizes Nominal Effective Exchange Rate (NEER) of each Asian country. Second, the AMU and the AMU DIs could warn overvaluation or undervaluation for each of Asia currencies. Third, trade imbalances within the region have been growing as the AMU DIs have been widening. Forth, the AMU DIs could predict huge capital inflows and outflows for the Asian country. The above fact-findings support usefulness of using the AMU and the AMU DIs as surveillance indicators for monetary cooperation in Asia.