Edited by Koichi Hamada, Beate Reszat and Ulrich Volz
Chapter 12: The Role of an Asian Currency Unit
Masahiro Kawai1 INTRODUCTION ASEAN13 finance ministers have been pursuing regional financial cooperation since the Asian financial crisis of 1997–98.2 Reflecting lessons learned from the crisis, the aim has been to strengthen national financial markets and to establish regional self-help mechanisms for crisis prevention and management. Their efforts have focused on regional economic surveillance (i.e. the Economic Review and Policy Dialogue, ERPD), regional short-term liquidity arrangements (i.e. the Chiang Mai Initiative, CMI), and local-currency bond market development (i.e. the Asian Bond Markets Initiative, ABMI). Asian central bank governors, participating in the Executives Meeting of East Asia-Pacific Central Banks (EMEAP),3 have also made efforts to improve their policy dialogue and promote Asian bond market development, for example through Asian Bond Funds (ABF). While there has been substantial progress in all these areas, little progress has been made in monetary and exchange rate policy coordination. Given the high and ever-rising degree of economic interdependence through market-driven trade, investment, and financial flows, East Asian economies have found it increasingly important to maintain relatively stable intraregional exchange rates while allowing sufficient flexibility against the US dollar. A first, modest step in this direction could be the creation of an Asian currency unit (ACU), which is an appropriately weighted index of East Asian currencies designed to monitor the collective movement of regional currencies against key external currencies—such as the US dollar and the euro—and each component currency’s movement relative to the ACU regional benchmark. Such an index can also be used by...
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