Integration in the Global Economy
New Horizons in Money and Finance series
Edited by Suthiphand Chirathivat, Emil-Maria Claassen and Jürgen Schroeder
Chapter 2: Currency area formation and the East Asian region
Robert Mundell 2.1 INTRODUCTION This chapter explores currency areas in general, and Asian currency areas and economic developments in particular. The subject has become much more moot since the so-called Asian currency crises and the advent of the euro. Perhaps the contrast between these two areas – Asia and Europe – is a good place to begin the discussion. It is hard to think of developments more different than the currency crises in Asia and the movement toward fixed exchange rates and a single currency in Europe. Throughout the Asian crisis, Asian countries were bombarded with sage advice from the international monetary authorities to destabilize their exchange rates. This was at the very time that 11 (now 12) European countries were moving in the opposite direction to fixing irrevocably their exchange rates with the ultimate intention of doing away with their national currencies. The contrast could not be starker. What was thought to be good for Asia – flexible exchange rates – was completely rejected by Europe; and what was thought to be good for Europe – fixed exchange rates – was anathema for Asia. Why would policies fit for 12 of the most advanced countries in the world be castigated for the fast-growing tigers of Asia? This chapter will present a discussion of this issue. It will argue that a great mistake was made in the 1970s when the international monetary authorities rejected the foundation of the postwar international monetary order based on fixed exchange rates anchored to the gold-convertible dollar, and adopted in 1976...
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