Coping with a New Monetary Order after the Global Crisis
Chapter 6: Need for regional monetary and financial arrangements in East Asia
There have been long and recurring discussions regarding East Asian monetary cooperation. However, the idea of regional monetary integration in East Asia only recently gained momentum. There are several reasons behind this momentum. The first reason is East Asian countries’ concern over their currency stability. It is undeniable that the rapid economic development and growth in East Asian countries was built on the stability of their exchange rates pegged to the US dollar. However, the dollar peg is no longer desirable. Furthermore, the dollar peg was also one important cause of the currency crisis East Asian countries experienced in 1997. There is an emerging need to stabilize intraregional exchanges rates between Asian countries, which refl ects their increasing intraregional economic linkages. The second reason is East Asian countries’ desire for protection against future financial crises. Capital flows are increasingly unstable and financial crises are more likely. Liquidity is the key to avoiding the recurrence of financial crises. Given that the financial assistance from existing international financial institutions is very limited, East Asian countries will have to either accumulate foreign reserves themselves or create their own regional financial institutions. The third reason is East Asian countries’ continued interest in regionalism. In particular, the successful launch of the euro in 1999 demonstrated that a single currency could be introduced in East Asia and that East Asian monetary integration could better serve the interests of East Asian countries in the new international monetary and financial order.
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