Can the European Monetary System be a model for East Asian monetary cooperation?

Abstract

Since the 1997 Asian financial crisis and the launch of the European Economic and Monetary Union shortly afterward, a growing number of studies have considered the idea of a so-called Asian Monetary System, mostly adopting the European Monetary System as its model. The operational adjustment burdens in the European Monetary System were asymmetrically distributed, however, in particular between Germany and the other member countries. The emulation of such an asymmetric system in East Asia is not likely to be sustainable, due to the much lower support for regional integration there than was the case in Europe. For a future Asian Monetary System to be sustainable, it should be designed in such a way as to promote symmetry in the adjustment burdens arising from its operation. To this end, it may be desirable for the Asian Monetary System to employ an exchange rate and intervention mechanism that levies adjustment burdens largely on participant currencies deviating substantially from the average member currency movements. This mechanism should also be constructed in such a way that each currency's probability of identification as a deviant currency is similar.