Three Cases for Monetary Integration in East Asia

Yale University MacMillan Center for International and Area Studies Working Paper No. 04

42 Pages Posted: 2 Sep 2006

See all articles by Ulrich Volz

Ulrich Volz

University of London - School of Oriental and African Studies (SOAS) - Economics; Deutsches Institut für Entwicklungspolitik (DIE) - German Development Institute (DIE)

Abstract

This paper evaluates the arguments for regional monetary cooperation in East Asia. Unlike in Europe, which saw longstanding discussions on the costs and benefits of monetary unification, a proper debate is not yet underway in East Asia. Instead, the "classical" European arguments for and against monetary integration are implicitly being adopted, ignoring the different economic backgrounds of East Asian countries. The discussion centers very much on whether East Asia fulfills the optimum currency area criteria. The implications of monetary unification for East Asia have barely been explored. In this context, this paper investigates three cases for pursuing monetary unification in East Asia in the long run. The paper first discusses the potential trade-creating effect of monetary union, an argument that was intensively discussed for Europe in the 1990s. Second, it draws attention to the role of regional monetary integration in overcoming the problems of "original sin" and "conflicted virtue", issues that have been rarely analyzed so far. Finally, the paper highlights the potential for regional monetary integration to be a way of (re)gaining some degrees of monetary independence in the region. None of these cases, however, is sufficiently strong to support monetary union in East Asia on purely economic grounds. The eventual decision to move (or to not move) toward monetary unification will be based on political considerations.

Keywords: Monetary Integration, Regional Cooperation, East Asia

JEL Classification: F33, F36, F41, F42

Suggested Citation

Volz, Ulrich, Three Cases for Monetary Integration in East Asia. Available at SSRN: https://ssrn.com/abstract=923380 or http://dx.doi.org/10.2139/ssrn.923380

Ulrich Volz (Contact Author)

University of London - School of Oriental and African Studies (SOAS) - Economics

London, WC1E 7HU
United Kingdom

Deutsches Institut für Entwicklungspolitik (DIE) - German Development Institute (DIE) ( email )

Tulpenfeld 4
Bonn, 53113
Germany

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