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Exchange-Rate Arrangements an Financial Integration in East Asia: On a Collision Course?

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  • Hans Genberg

    (Executive Director (Research), Hong Kong Monetary Authority)

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.

Suggested Citation

  • Hans Genberg, 2006. "Exchange-Rate Arrangements an Financial Integration in East Asia: On a Collision Course?," Working Papers 122, Oesterreichische Nationalbank (Austrian Central Bank).
  • Handle: RePEc:onb:oenbwp:122
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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. John Williamson, 2006. "A worldwide system of reference rates," International Economics and Economic Policy, Springer, vol. 3(3), pages 341-352, December.
    3. 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.
    4. Alexandros E. Milionis, 2006. "An Alternative Definition of Market Efficiency and some Comments on its Empirical Testing," Working Papers 50, Bank of Greece.
    5. 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.
    6. 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.
    7. 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.
    8. 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.
    9. 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(01), pages 32-38, April.
    10. 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.
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    14. Juan Carlos Martinez Oliva, 2014. "Moving Towards Monetary Integration in East Asia: Achieving Economic Convergence in a Game-Theory Framework," China Economic Policy Review (CEPR), World Scientific Publishing Co. Pte. Ltd., vol. 3(02), pages 1-24.
    15. Andreas S. Andreou & George A. Zombanakis, 2006. "Computational Intelligence in Exchange-Rate Forecasting," Working Papers 49, Bank of Greece.
    16. Hans Genberg, 2017. "Financial Integration in Asia," Working Papers wp22, South East Asian Central Banks (SEACEN) Research and Training Centre.

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    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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