Towards Monetary and Financial Integration in East Asia
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Towards Monetary and Financial Integration in East Asia

Edited by Koichi Hamada, Beate Reszat and Ulrich Volz

This indispensable book provides a comprehensive analysis of monetary and financial integration in East Asia. It assesses the steps already taken toward financial integration and brings forward different proposals for future exchange rate arrangements in what has now become the world’s most dynamic region.
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Chapter 11: Asian Currency Baskets

John Williamson


John Williamson INTRODUCTION Two different types of currency basket have figured in recent discussions on East Asian monetary arrangements. One idea, now being actively promoted by the Asian Development Bank, involves a basket consisting of East Asian currencies. Such a basket could be a fore-runner of an East Asian currency, just as the basket ECU consisting of European currencies was a fore-runner of the euro. It is also in principle possible that a basket of this type could be used as a mechanism for organizing a joint float of the East Asian currencies, just as in pre-euro days the EMU countries could have held their currencies together with interventions motivated by a currency’s deviation from the basket ECU. However, it is a historical fact that this is not how the European currencies maintained the margins of the EMS. In practice, they defended bilateral margins against other members of the EMS, without paying attention to the ECU basket. A separate type of basket would be one to which all the members of a regional bloc decided to peg their currencies. (In practice some members of the bloc may float their currencies and merely use the basket as a numeraire in terms of which to assess whether their exchange rate is getting too strong or too weak rather than pegging to it.) Such a basket need not contain any regional currencies at all; indeed, I will argue subsequently that there would be advantages to excluding all regional currencies (no matter how important...

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