Asian Monetary Integration in Recent Economic Debates

Abstract

Recently, after the financial and currency crises that hit Asian economies at the end of last millennium and the foundation in Europe of the single currency, a renewed interest towards integration processes in Asia has grown (Whyplosz 2001). In the last four years a vivid scientific debate on such topic has taken place on the main international economic journals. Such debates are relevant to the theory of federalism for at least two reasons. First, in the theory and history of federalisation processes, monetary integration plays an important role as money is often considered a public good which has to be provided and safeguarded by a public institution representing a collective sovereignty and legitimated through democratic citizenship. Federalism is based on the struggle against the absoluteness and exclusiveness of national sovereignty and monetary integration provides an institutional economic tool to overcome exclusive national sovereignty and foster political integration. The second reason is that from a strategic point of view, active political federalism has always advocated the creation of continental groups of countries in order to better and more realistically struggle for greater democratic legitimacy in the world. Asian monetary integration may therefore represent a further step towards this scenario of a multi-polar geography of power worldwide. But the institutional approach, where the process is guided by political institutions to provide a collective public good is not the only approach to monetary integration. Integration has been (Vaubel 1984a; b) - and still is (Buchanan 2004) - considered also as a (more or less) spontaneous process whereby markets attempt to gain greater efficiency, through the decrease of transaction costs and policy costs associated with different currencies. In this case the institutional content of the integration process can be minimized (in some cases to zero, in others to a very broad constitutional arrangement). Three main questions have historically emerged in this field and are dealt in this work: a) how to cut the world in order to create optimum currency areas and, in the specific case we are examining, which countries to “invite” into a monetary integration process in Asia; b) what model of integration is most suitable for the selected countries and what institutions are required; c) how to manage the transition towards the target.