Coping with a New Monetary Order after the Global Crisis
In a world of financial integration, Asian countries will become increasingly vulnerable to capital flows, which can be caused by investors’ whims. International economic crises will continue to occur in the future as they have for centuries past. A single country under such circumstances can choose an exchange rate regime from only three possible options: free floating, complete peg or fixed system with capital controls. As examined in previous chapters, none of these systems is satisfactory. This suggests that a collective regional monetary arrangement should be opted for as an alternative to the deadlock of the individual choice of exchange rate regime. In fact, the need to foster a collective regional monetary arrangement in East Asia is very strong, because intraregional exchange rate stability among East Asian countries is essential for their economic prosperity. However, given that the economies of East Asian countries are very heterogeneous, and that almost all these countries moved to more flexible exchange rate systems after the currency crisis, collective monetary arrangements are still a long- term goal.
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