Edited by Patrick Artus, André Cartapanis and Florence Legros
Chapter 2: Currency Regimes and Process of Regional Financial Integration of the Emerging Countries
2. Currency regimes and the process of regional ﬁnancial integration of the emerging countries Daniel Goyeau, Jacques Léonard and Dominique Pépin INTRODUCTION Vis-à-vis the rising interdependency of Western ﬁnancial markets, reducing a priori the potential proﬁts of diversiﬁcation of international portfolios, the development of emerging ﬁnancial markets since the very beginning of the 1990s has been generally regarded as likely to oﬀer new opportunities. In this context, it has become traditional to structure the search for yield opportunities and the associated investments according to a logic with large geographical spread.1 Asia, Latin America, CEECs, the Middle East. This geographical logic of diversiﬁcation never truly takes account of the heterogeneity of each of these regions, a heterogeneity which obviously concerns real factors (level of development, type of specialization, degree of opening) but also monetary factors, where exchange rate and convertibility regimes are the structuring elements. Geographical logic consists in arbitrating large areas between one another, and would, for that reason, lead to ﬁnancial integration of emerging markets, therefore with the realization of the law of single international price of risk (Goyeau et al., 1999). However such a realization requires a double continuous adjustment: that of the foreign exchange market on the one hand, that of ﬁnancial markets on the other. Also, when one is more particularly interested in the methods of diversiﬁcation with respect to assets in emerging countries, one can a priori doubt the realization of the law of single price of...
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