Regional Monetary Cooperation Research Articles

Following the Franco-German harbinger? The footprint of the euro in regional monetary integration

This article analyses the ideational footprint of the euro in regional monetary integration. Upon the basis of over 70 financial elite interviews in China, Brazil and the Gulf Cooperation Council (GCC) countries we find empirical evidence to suggest that EMU triggered considerable symbolic effects in stimulating regional monetary cooperation up to the recent Eurozone crisis. Nonetheless, our analysis coincides with Cohen’s in being sceptical about the possibility of monetary unions in Latin America, the GCC and East Asia. This is partly explained by a lack of sense of community in these regions. However, where we revise Cohen’s work is in the notion that monetary unions require a regional leader. EMU stands out because it is primarily based on the Franco-German partnership (which remains crucial for its survival) and not on Germany’s leadership. This joint leadership is absent in our three case study regions and thus might explain why progress towards monetary union has been limited.

Is Monetary Cooperation Among the Four Regions Across the Taiwan Strait Feasible?

Drawing on the optimum currency area (OCA) and exchange rate theories, we use an extended OCA index approach to assess the feasibility of regional monetary cooperation in the four regions across the Taiwan Strait (FRTS). In addition to more common variables, such as differences in economic structure, inflation rates, and interest rates, we find that the asymmetric shock in money supply is an important factor affecting the comprehensive cost of regional monetary cooperation among the FRTS. We conclude that regional monetary cooperation among the FRTS is feasible according to empirical analysis of OCA indexes between the FRTS and a comparison of the OCA indexes between the FRTS and the European Union (EU).

Varieties of regional monetary cooperation: a tool for reducing volatility in developing economies?

Can regional monetary cooperation shield developing regions from global volatility? The article argues that the main contribution of regional monetary cooperation to enhancing the shock-buffering ability of its member countries is to provide short-term liquidity and to increase regional trade and financial links. In contrast, traditional optimum currency area (OCA) theories formulate the advantages of regional monetary cooperation in terms of allocative efficiency gains and aim at a full currency union as final stage. As such, traditional theory widely ignores the shock-buffering capacity of regional monetary cooperation as well as their varieties. In contrast, the article argues that intermediate stages of regional monetary cooperation have their own rationales related to such shock-buffering capacity. This paper systematically examines the variety of regional cooperation arrangements in the developing world that range from regional payments systems over the pooling of reserves to exchange rate coordination. We propose that the potential for shock buffering is dependent on the chosen form of cooperation. Furthermore, in contrast to full monetary integration, which is highly demanding in terms of policy coordination, the requirements for regional policy coordination are significantly lower, depending on the form and aim of the arrangement.

Coping with financial crises: explaining variety in regional arrangements

Financial regional arrangements vary across countries and change over time. Until recently, most economists and political scientists took the European model of monetary integration as the yardstick to which all other regional financial arrangements had to measure up in this article. It is argued that the Euro crisis provides an opportunity for scholars to adopt a different perspective that does not interpret the variety of financial arrangements merely as economic deficiencies caused by the incapacity or unwillingness of regions to follow the European model. Instead, the comparative study of monetary and financial regionalism has to account for the different factors that shape variations. These go from different levels of economic development, over regional political and economic preferences to historical processes which shape the institutional context and the constellation of interests and social forces. Such an approach, which integrates economic and political science approaches, de-centres the Euro model and opens up a new understanding of the global diversity of regional monetary and financial cooperation, and their potential to cope with financial crises.

Monetary Cooperation Perspective in Central Asia

Abstract Recent global economic and financial crisis and exchange rate volatilities in Eurasian countries caused significant impact on exchange arrangements and trade flows in Central Asian economies and thereby unveiled the necessity of monetary cooperation in the region. For this, current paper proposes a deviation measurement for coordinated exchange rate policies in Central Asian countries to enhance the regional monetary cooperation. Central Asian Currency Unit - CACU is calculated as a weighted average of Central Asian currencies against USD following the method used to calculate the European Currency Unit (ECU) and the Asian Monetary Unit (AMU) introduced by Ogawa and Shimizu (2005) for East Asian countries; and indicator that displays the degree of deviation of Central Asian currencies against CACU at the benchmark rate. Three types of CACU are considered in the paper based on nominal GDP, GDP measured at PPP and trade volume, while deviation indicator is grounded on arithmetic average of GDP at PPP and trade volume shares. Findings indicate that Central Asian currencies significantly deviate in terms of other Central Asian currencies. Furthermore, nominal and real deviation indicators signal that the trends vary in both the scales and directions. Thus, these measurements can be utilized for enhancing coordinated exchange rate policies among Central Asia.

Growing Global Needs for ACU-Denominated Reserve Assets

In the wake of the Asian crisis in 1997, policy efforts have been largely devoted to installing various safety devices in the region, e.g. FX reserves and other swap arrangements of CMIM and extra backup with IMF liquidity facilities. Despite comprehensive progresses in regional monetary cooperation, they have proven less than effective in securing financial stability in the region as witnessed by the global financial crisis in 2008. Given the newly raised insurance motives in the region after the GFC, we have been looking for the underlying causes of volatile liquidity situation to seek better ways to enhance regional financial stability. This paper finds that the missing link in previous efforts has been the lack of valid reserve assets. Excess reliance on dollar assets in the form of increased FX reserves has revealed many problems. Going forward, a viable remedy would be a provision of a new reserve asset that represents the growing role of Asia. Introducing a new category of reserve assets in the international monetary system would not only complement the current monetary cooperation in the region but also enhance the global financial stability. This is because of its usefulness to alleviate the excess dollar dominance as a sole reserve currency and its eroding confidence due to tectonic changes in economic landscape. Without addressing the issue, even the best efforts in monetary and financial cooperation would not help ensure stability in the region and the world as repeatedly dictated by the reality. Specifically, introduction of ACU-type of reserve assets would serve to narrow the widening gap between demand and supply of safe financial assets. It would contribute to normalizing cross-border capital flows and sustaining stability of the existing reserve assets. Regional monetary and financial cooperation need to be predicated on this crucial effort to make sustained improvements in global rebalancing and moderate cross-border capital flows for global financial stability. Future efforts in regional monetary cooperation need to take this into account to realize the potential for supplying a new regionally-based reserve asset to remain time-consistent.

SouthKorea and the Pitfalls ofEastAsian Monetary Regionalism: Do Neighbors Mean Neighborly Behavior?

In the aftermath of theAsian financial crisis, monetary regionalism has been widely advocated as a means to shelterEastAsia from not only the volatility of global financial markets but also from theUS‐dominated International Monetary Fund. While the primary obstacle to deepening regional monetary cooperation centered around theChiangMaiInitiative (CMI) is cogently identified as being political, the existing literature focuses mostly on the rivalry between the likely lenders,China andJapan, and neglects the likely borrowers. Using the case ofSouthKorea, this paper provides a cautionary tale of theCMIfrom a borrower's perspective. Any workable liquidity‐support arrangement, regional or otherwise, requires a robust surveillance mechanism to address the problem of moral hazard inherent to such a lending facility. In turn, an effective surveillance mechanism inevitably implies a significant political leverage for the lenders and vulnerability for the borrowers, an outcome that cannot be assumed to be avoidable by theCMIjust by the virtue of its regional scope. There is little basis to expect that being neighbors necessarily means neighborly behavior; mere geographic proximity does not makeChina andJapan any less self‐interested than theUnitedStates, nor does it makeKorea's potential political costs more tolerable.

Regional Business Cycles in East Asia: Synchronization and its Determinants

I. IntroductionEconomic integration in East Asia has progressed with the aid of increasing international trade and financial flows. The size of ASEAN+31 economy has been taking an ever-greater share of the world economy, as shown in Table 1. China has emerged as a major economic partner of both East Asian countries and the rest of the world. This tendency of increasing economic integration is likely to lead regional business cycle synchronization in East Asia.Trade integration in East Asia has actively proceeded over the last two decades through the ASEAN Free Trade Area and the ASEAN Investment Area. These efforts contributed to lowering transaction costs of regional trade. Moreover, strong tendency of regional trade integration is supported by bilateral and plurilateral free trade agreements. For example, ASEAN+3 countries have concluded 131 FTAs and are currently negotiating 53 FTAs, as of 2012.Regional financial cooperation has been developed in East Asia under the ASEAN+3 initiatives since the Asian currency crisis. It has manifested in various aspects, including gradual financial liberalization, increasing cross-border capital flows, establishing regional financial safety nets, and developing local currency bond markets.2 The issue of regional business cycle synchronization is also relevant to the regional monetary cooperation in East Asia. This is, in particular, important for the optimum currency area because the degree of regional business cycle synchronization is understood as one of the economic convergence criteria. In this regard, recent studies have examined the business cycle comovement between countries in Asia in order to assess the desirability of a regional currency union.Empirical literature provides a general tendency of regional business cycle synchronization in East Asia. Selover (1999) uses principal component analysis to find evidence for a shared business cycle among ASEAN countries. However VAR estimations reveal weak evidence of business cycle transmission among ASEAN countries. Selover (2004) examines the economic links between Korea and Japan and finds evidence of moderate synchronization in economic activity. Rana (2007) extends Shin and Wang (2003) to find that intra-industry trade is the major factor explaining business cycle comovement in East Asia.For emerging and developing economies as in Calderon et al. (2007), the empirical evidence of business cycle synchronization appears to be more negligible with mixed results. Moneta and Ruffer (2009) examine business cycle synchronization in East Asia by estimating a factor model through Kalman filtering. Their finding is that Asian countries, except China and Japan, share a common factor of business cycle that appears to reflect export synchronization. The existing studies generally find a positive relationship between trade linkages and synchronization for the Asian region, in line with the relatively high share of intra-industry trade within the region (e.g. Choe, 2001; Shin and Sohn, 2006; and Rana, 2007). In contrast, Kumakura (2006) finds that similarities in the production structure are much more important explanatory variable for bilateral growth synchronization than bilateral trade links. Imbs (2011) examines bilateral business cycle correlations within emerging East Asia. He finds evident business cycle synchronization after the global financial crisis of 2008:Q3, but it is substantially more pronounced amongst developed countries than in emerging East Asia. Nguyen (2007) investigates the determinants of East Asian business cycle synchronization, covering the period 1970-2000, by using an OLS-based extreme bound analysis, and finds that trade openness, intra-industry trade, and the similarity of monetary policy are major channels of business cycle synchronization. Allegret and Essaadi (2011) analyze the feasibility of a monetary union in East Asia focusing on business cycles synchronization. They find that the increase in bilateral trade in East Asia improves long-run business cycle synchronization. …

National and Regional Solutions to Global Challenges Problems of Monetary Policies and Regional Monetary Cooperation in East Asia and the European Union

This paper presents some thoughts on what we can learn from investigating European and East Asian monetary policies and monetary cooperation in historical comparative perspective. This fresh approach to the ongoing global and regional crises highlights the necessity to view problems of national and regional monetary policies in East Asia and Europe in the global context of the post Bretton Woods era and the problems of monetary policies amid economic and financial globalization. More concretely, the paper highlights the following aspects.1. The national strategies followed by developmental states in East Asia as well as intensified regional cooperation in monetary policies in the EU since the 1970s and the introduction of the euro in 1999 were initially both very successful solutions. The European integration process and the economic rise of the East Asian region are considered two of the most impressive success stories in recent history. Both successful solutions, however, have encountered problems since the 1997/98 Asian Financial Crisis and the ongoing euro crisis since 2010. 2. Since 1997, East Asian countries tried to supplement national monetary policies with regional cooperation in form of the Chiang Mai Initiative (CMI). The CMI, however, has proven to be not successful and is unlikely to lead to further regional cooperation and integration in the region. In effect, East Asian countries remain dependent on national self-help solutions.3. Since the beginning of the global financial crisis in 2008, serious deficiencies of the European Economic and Monetary Union (EMU) have become apparent. The notion that the introduction of the euro and fiscal discipline alone would lead to economic convergence proved to be an illusion as economic imbalances in the region widened and weakly regulated financial markets led to huge asset bubbles.4. Europe and the East Asian region are at critical junctures of their development as both their national and regional solutions face challenges. National solutions become increasingly expensive with a tendency to exacerbate global economic imbalances and create regional conflicts. The EU faces the choice between a crisis solution strategy that focuses on austerity and structural adjustment in deficit countries and one that wants to regionalize the costs of the crisis and create a de facto European federal state.

China's Free Trade Agreement Strategies

The Trans-Pacific Partnership (TPP) is a multilateral free trade agreement (FTA) which aims to liberalize the economies of the Asia–Pacific region. The rapid movement of the TPP agenda, however, ha...

Regional Monetary Cooperation in Latin America

Latin American has the longest history of regional integration efforts in the developing world. This paper analyzes the experience of regional monetary cooperation in Latin America over the past three decades. This experience has been overall successful but also uneven, both in terms of country coverage and services provided. Although strictly not a form of monetary cooperation, development financing does play a useful complementary role by proving counter-cyclical or at least stable financing during crises, when private financing for developing countries dries up.

Financial and Monetary Cooperation in Asia: Challenges after the Global Financial Crisis

This paper reviews recent developments in regional financial and monetary cooperation in East Asia, and suggests some issues that could contribute to more constructive development in the future. The regional monetary and financial cooperation was originally motivated by the Asian financial crisis, but it has faced new challenges due to some recent events, such as the global financial crisis and global imbalances. We review recent developments of regional financial and monetary cooperation in East Asia, such as CMIM, ABMI and ABF, and regional surveillance mechanisms. We argue that there are several issues to be discussed in developing more effective regional financial and monetary cooperation: including developing CMIM to be effective in preventing future crisis, linking regional cooperation with global financial architecture properly, constructing effective surveillance mechanism, and strengthening regional policy dialogue.

The Role Of Euros In Eurozone Regionalism And World Globalization

The success of Eurozone regionalism is primarily based on the establishment of regional monetary cooperation that resulted in creation of the Euro. In addition, the development of regional strategies for increasing competitiveness of the region and the establishment of structural funds for assisting economic restructuring, solving the social problems, and reducing the differences in the social economic structure of the member countries helped Eurozone integrates fully with the global economy. Just as the Euro has successfully helped the processes of regionalism (globalization on a smaller scale) in Eurozone, a global currency would be necessary counterpart to the further globalization of world economies. As regional monetary cooperation was required in Eurozone for success of the Euro, a global monetary cooperation is needed for creation and success of a global currency. This paper explores the success of the Euro in Eurozone regionalism, the formation of a global monetary cooperation, development of a framework for currency fluctuations among main currencies (dollar, euro, and yen), and ultimately creation of global currency.

The Evolving Renminbi Regime and Implications for Asian Currency Stability

The Chinese authorities described the management of the renminbi after its 2005 unpegging from the US dollar as involving a basket of trading partner currencies. Outside analysts have detected few signs of such management. We find that, in the two years from mid-2006 to mid-2008, the renminbi strengthened gradually against trading partners' currencies within a narrow band. In mid-2008, the financial crisis interrupted this experiment and the bilateral renminbi/dollar exchange rate stabilised at 6.8. The 2006-08 experience suggests that a shared policy of gradual nominal effective appreciation renders East Asian currencies quite stable against one another. Such a shared policy would create favourable conditions for regional monetary cooperation.

The evolving renminbi regime and implications for Asian currency stability

The Chinese authorities described the management of the renminbi after its 2005 unpegging from the US dollar as involving a basket of trading partner currencies. Outside analysts have detected few signs of such management. We find that, in the 2 years from mid-2006 to mid-2008, the renminbi strengthened gradually against trading partners’ currencies within a narrow band. In mid-2008, the financial crisis interrupted this experiment and the bilateral renminbi/dollar exchange rate stabilised at 6.8. The 2006–2008 experience suggests that a shared policy of gradual nominal effective appreciation renders East Asian currencies quite stable against one another. Such a shared policy would create favourable conditions for regional monetary cooperation.

South-South Regional Monetary Cooperation: an Option for Regional Financial Development?

South-South Regional Monetary Cooperation: an Option for Regional Financial Development?

China's New International Financial Strategy amid the Global Financial Crisis

AbstractThe Chinese Government has stepped up its drive to reconstruct its international financial strategy after the sub‐prime crisis developed into a global financial crisis in 2008. The main aim of the strategy is to reduce the country's dependence on the US dollar in foreign trade, cross‐border capital flows and foreign exchange reserve management. The strategy can be divided into three tiers: renminbi internationalization, regional monetary cooperation and reconstruction of the international monetary regime. So far, the Chinese Government has fared well in the application of all three tiers. We hold that the Chinese Government should continue in the same direction in a coordinated manner despite various challenges it faces.

Vietnam and East Asian Monetary Cooperation: Efforts and Policies

The article focuses on Vietnam's participation in East Asian monetary cooperation. It argues that monetary cooperation is necessary for the regional countries, including Vietnam. Perspectives on regional monetary cooperation are considered with the Chiang Mai Initiative in the short term, and an Asian monetary system, Asian monetary fund, and Asian monetary union in the medium and long terms. More important, the author emphasizes Vietnam's efforts and policies in this cooperation. Vietnam has done a great deal to support East Asian monetary cooperation by joining many working groups within the context of ASEAN+3. However, more economic reforms should be undertaken to further upgrade Vietnam's participation in regional monetary cooperation. The author finally makes some recommendations that will help Vietnam's policy makers strengthen the country's participation in East Asian monetary cooperation.

東アジアにおける地域通貨協力

This paper focuses on the regional monetary cooperation in East Asia for both management and prevention of currency crisis to investigate how the regional monetary cooperation has been developing since the Asian Currency Crisis in 1997 and what kind of problems are left for East Asian countries. It is pointed out that the Chiang Mai Initiative has not yet enough effective functions of the surveillance process for currency crisis prevention. Surveillance over exchange rates is necessary in order that the Chiang Mai Initiative should be more effective for currency crisis prevention. A regional currency unit is explained for the effective surveillance.

Why doesn't regional monetary cooperation follow trade cooperation?

ABSTRACT Conventional theories in political economy argue that monetary cooperation is more likely in regions with trade interdependence. In practice, however, regional trade cooperation usually does not lead to monetary cooperation. I argue that this disparity results from different political economy logics in the two issue areas. In contrast to trade cooperation, the domestic actor that sacrifices the most in a regional monetary agreement is the government itself, which loses a significant tool for domestic economic adjustment as well as an important political symbol. Thus, monetary cooperation is only likely if there are direct benefits to the government to compensate for its lost monetary control. Benefits to the aggregate economy or to particular economic sectors are usually insufficient compensation. Experience with earlier monetary institutions, however, can in some cases reduce the costs to governments enough to make cooperation feasible. I explore these arguments with two sets of case studies: Central America and West Africa. Central America has had the highest level of trade cooperation in the developing world, but never successfully implemented monetary cooperation. West Africa, by contrast, developed a strong regional currency despite its very low intra-regional trade. West Africa did have, however, experience with prior regional monetary institutions that lowered the costs of new cooperation for newly independent African governments.