Regional Monetary Cooperation in Asia

Abstract

This paper focused on the asymmetric responses or misalignments of Asian currencies before and after the global financial crisis. Regional monetary cooperation is necessary for reducing such misalignments. Policy proposals for strengthening regional monetary cooperation in Asia after the global financial crisis are as follows: first, the monetary authorities should use an AMU and AMU Deviation Indicators to make policy dialogue regarding intra-regional exchange rate stability to solve the “coordination failure” of currency policy among Asian countries. Thus intra-regional exchange rates among Asian currencies can be stabilized. Second, the monetary authorities should introduce the surveillance of not only macroeconomic variables but also exchange rates into the surveillance process under the CMI. In addition, fiscal deficits should also be included in the surveillance process, especially after the lessons learnt from Europe Third, the monetary authorities should reduce or eliminate the IMF link to ensure effective currency swap arrangements under the CMI. Moreover, they should offer the AMRO the tasks of surveillance and the implementation of currency swap arrangements to eliminate CMI dependence on IMF surveillance.

This paper is a revised version of that presented at the international conference “Who will provide the next Financial Model? Asia’s Financial Muscle and Europe’s Financial Maturity” of the Joint Research Group “EU Economy” of EUSI in Tokyo, held at Keio University on December 10, 2011. The author is grateful for the helpful comments of Mei Kudo (Tsuda College) and other conference participants.