Comments on H. Genberg: “Exchange-rate arrangements and financial integration in East Asia: on a collision course?

Abstract

At first, I point out some backgrounds for this paper. Firstly, we learnt some lessons from the Asian Currency Crisis in 1997. Among them, it is very important to experience that official and de facto dollar peg system had adverse effects on macroeconomy and currencies in the region. Secondly, East Asian countries have strong economic relationships with intra-regional countries and European countries as well as the United States in terms of merchant and service trades and crossboarder capital transactions including FDI, portfolio investments and bank loans. Also production networks have been established in East Asian region. Trade volumes of intermediate goods as well as final goods have been increasing among East Asian countries. Lastly, under a variety of exchange rate systems in East Asia, the US dollar depreciation makes inter-regional exchange rates unstable and misaligned. This paper pointed out two developments in terms of both exchange rate coordination and greater financial integration in East Asia. One development is that the increased trade integration among economies in the region has led to calls for coordination of exchange rate policies lest competitive depreciations lead to artificial distortions in competitiveness, disruptions of trade, and dislocation of production. The other development is that it is recognized that international capital flows can bring substantial benefits and this ambiguous attitude towards international capital flow have been to encourage financial integration within the region. This paper takes these two developments towards greater financial integration on the one hand and proposal for exchange rate coordination on the other. This paper gives us some important points of investigation about issues related with exchange rate policy coordination in East Asia. Firstly, this paper considers the proposals for exchange rate policy coordination that have focused on some form of common exchange rate peg. It emphasizes the difference between pegs that link the currencies to an external anchor and those that are based on an internal unit of