One area of the common monetary policy in East Asia

Triggered by the Asian currency crisis of 1997, the monetary authorities of ASEAN countries and Japan, China and South Korea (ASEAN + 3) are aware of the need for regional coordination in exchange rate policy among the countries of East Asia. The Chiang Mai Initiative (CMI), which focuses on agreements for the exchange of currencies, was decided at the meeting of the ASEAN +3 finance ministers held in Chiang Mai, Thailand, in May 2000, and regional monetary cooperation has been initiated in East Asia since.

The regional monetary cooperation is based on the idea of creating a common currency basket unit in East Asia and stabilize exchange rates between currencies intra-regional trade on the basis of this common currency basket unit. This would mean that the monetary authorities in each country should adopt a policy of exchange rate on the basis of the common currency basket Asian unity, and a common currency policy that would ensure the stability of exchange rates between currencies intra-regional trade will be established. This type of anchor between intra-regional currencies to a common currency in politics would have to satisfy the various conditions to form an optimum currency area as pointed out in the theory of optimum currency areas. If these conditions were not met, anchoring exchange rates between regional currencies could end in failure in the long term.

In this document, therefore, the authors have conducted an analysis on whether East Asia can be an optimum currency area as a common currency, the political sphere. For the monetary authorities of East Asian countries to establish mutually exchange rates between currencies intra-regional trade by adopting an exchange rate policy based on the level of the common currency basket unit or, in other words, form a common currency in the political area, these countries will need to meet the various factors of an optimum currency area as stated in the theory of optimum currency areas. The results of the analysis done for this paper can be summarized as follows. 1) A field of monetary policy by using a basket of currencies as an anchor currency could be formed over a larger area than one using the dollar as an anchor currency. 2) Assuming that the common currency policy has been established with a basket of currencies using the major currencies, ie the yen, the dollar and the euro in ASEAN 5 + + China South Korea, the weighting of the component currencies should be somewhat superior to the weight based on the exchange value, as well as the optimum weight to the US dollar a bit higher. However, 3), the optimum weight dollars was less than 80% in the period during which the dollar pegged system was adopted, and therefore it would not be desirable for the monetary authorities of various countries in East Asia to adopt a dollar-pegged system. 4) Assuming that the area of monetary policy have been trained within ASEAN + 3, before the crisis, it would have been difficult for Japan to participate in a common currency policy with other countries East Asia. According to the data after the Asian crisis, by contrast, the results suggest that a common currency basket including the Japanese yen will be sustainable in East Asia and that Japan could participate in a common currency and defence policy Together with these other currencies.

It should be emphasized that these are only the results of recent tests performed on the data. In the future, free trade agreements (FTAs) and economic partnership agreements (EPAs) between the countries of East Asia are expected to increase in number. In practical situations, however, there are signs that the establishment of production networks in East Asia is progressing in both scope and intensity. Given these trends, it is anticipated that the analysis of the results obtained in this document will further develop in a situation in which a field of monetary policy will be easy to apply in the region of East Asia in the future.