Regional Monetary Integration Research Articles

RMB Internationalization

The internationalization of the renminbi (RMB) is viewed by some experts as a potential challenge to the US dollar's (USD) hegemonic status in the current global monetary system. This study employs a mixed theoretical framework to delve into the prospective evolution of China’s monetary influence. By applying the power transition theory to analyze the global monetary power structure, this study evaluates China’s dissatisfaction as a potential challenger against the dominance of the USD and examines the power parity between China and the United States. On a regional scale, the analysis focuses on possible Asian monetary integration of the RMB-domination by adopting the neofunctionalist paradigm derived from the European experience and juxtaposing this process with European monetary integration. The analysis shows that China has not been able to directly challenge the dominance of the USD, nor has it effectively spearheaded the agenda for regional monetary integration. More specifically, China’s export-oriented growth model has hindered the emergence of the RMB as a substantial competition to the USD within East and South Asia.

ROBERT TRIFFIN, JAPAN, AND THE QUEST FOR ASIAN MONETARY UNION

Especially with the Asian financial crisis of 1997–98, Asian countries have advocated a profound reform of the international financial architecture. Their proposals focused on two main axes: a reform of the global financial system, and stronger regional monetary integration in Asia. There are here significant parallels with the ideas of Robert Triffin (1911–1993). Triffin became famous with trenchant analyses of the vulnerabilities of the international monetary system. The Triffin dilemma is still present among international monetary policy-makers, also in Asia. Triffin put forward several proposals for reforming the global monetary system, but he also developed proposals for regional monetary integration. These were very much based on his experience with the European Payments Union, and focused on the creation of a (European) reserve fund and a (European) currency unit. In this paper we focus on Triffin’s proposals for an Asian payments union in the late 1960s, giving special attention to Japan (in Triffin’s time, the biggest Asian economy; moreover, Triffin had an important Japanese network).

Monetary integration in South America: Elección of candidates through unsupervised machine learning

Applying Unsupervised Machine Learning techniques to a set of nominal variables (based on the optimum currency area [OCA] theory and the Maastricht Treaty criteria) and industrial indicators (based on similar production patterns), this paper aims to identify potential candidates for a monetary integration in South America (SA). The main conclusion is that, according to the clustering of the nominal and industrial indicators, the countries in best position for a hypothetical monetary integration in SA are Chile, Colombia, and Perú (and Ecuador to a lesser extent); countries that are generally members of the same cluster. This group of economies, which belong to the Pacific Alliance, are in a better position to meet various criteria for regional monetary integration, such as nominal convergence and similar production patterns.

THE IMPORT OF INSTITUTIONS TO THE BRICS COUNTRIES

This article explores the potential approaches to optimising the way the institutions of mutual common use by the BRICS countries are constructed. The topic is time-relevant, for it reveals the need to work out a new institutional basis to understand the workings of the BRICS institutions as a result of recent transformations, such as Brexit, in the phenomenon of international and regional economic integration. The article is founded on the hypothesis that the import of institutions by the BRICS may be a more effective approach to the member countries’ convergence than the conventional approach. The originality of the theme lies in the fact that the modern economic literature has not studied to the full extent the impact of this exogenous factor on financial integration. There is also a need for the further development of the least-studied areas of regional monetary integration, namely the lack of the ability of current world institutions to manage the common monetary policies and debt of the member countries. The author proposes principles for creating and operating a virtual contractual republic of the BRICS contrary to the exploitation-state model of the EU. The article rediscovers the institutionalist idea about democratic decisions by a group of subjects such as the member countries of a particular integration agreement. The author maintains that the new institutions of the BRICS may cause dramatic changes in the world monetary system, international liquidity and international reserves. The general conclusions of the article encompass the significance of creating integration institutions on the basis of the experience of the BRICS as a way to more economic and financial stability in the world. The results contribute to the search for opportunities of optimal operation of the BRICS regional debt market. In his closing remarks, the author outlines the prospects of settling the debt problems in the BRICS based on the virtual debt market.

An Index of African Monetary Integration (IAMI)

This study improves the African Regional Integration Index (ARII) proposed by the African Union, the African Development Bank and the United Nations Economic Commission for Africa by providing a theoretical framework and addressing shortcomings related to weighting and aggregation of the indicator. This paper measures monetary integration in the eight African Regional Economic Communities (RECs) by constructing an Index of African Monetary Integration (IAMI). It proposes an Optimal Currency Area as theoretical framework and uses a panel approach to appreciate the dynamics of the index over different periods of time. The findings show that: (i) inflation and finance (trade and mobility) present the highest (lowest) score while ECOWAS is (EAC and IGAD are) the highest (least) performing. (ii) Surprisingly, in most RECs, the highest contributors to wealth creation are not the top performers in regional monetary integration. (iii) The RECs in Africa are characterized by a stable monetary integration which is different from the gradual process usually observed in monetary integration because with the exception of the EAC and UMA, the dynamics of IAMI show a steady trend in the overall index across time. Policy implications are discussed.

GRAVITATY POTENTIAL FOR CURRENCY ALLIANCES’ INTRARIGIONAL TRADE

The paper develops the concept of regional monetary integration, the framework of which includes three alternative exchange rate arrangements: currency board, full or parallel dollarization and currency union. Each of them has its own peculiarities of formation and development, its own advantages and disadvantages, but the common feature is unconditional exchange rate unification. The concept of currency proto-integration was introduced, which foresees the exchange of information on monetary initiatives between monetary authorities, consideration of counterparties’ interests to minimize risks or maximize common benefits in the field of monetary relations.In order to assess the effectiveness of monetary integration for the development of intra-regional trade flows, we use gravity modeling based on a sample of more than 105 thousand observations of bilateral trade flows within monetary integrational and proto-integrational alliances. Gravity model includes the parameters of the volumes of bilateral trade, gross domestic product, weighted distances between states and the system of dummy-variables for the determination of monetary associations, common language and borders between trading states. The applied gravity model demonstrates a fairly high level of certainty for South America, Europe, South and East Asia (R2 for them was 0.71, 0.63 and 0.54, respectively). It was established that among the monetary alliances, the integrational and proto-integrational structures of South America, Asia and Europe were most effective in the aspect of intensifying intraregional trade. Between the African monetary blocks, the regular growth of mutual trade was observed only in the West African Economic and Monetary Union, while the rest was characterized by reverse dependence.

Theoretical foundations of regional monetary integration and the practice of forming its prerequisites in the EAEU

The article discusses the historical, political and fundamental economic prerequisites for the transition to monetary integration within the framework of the EAEU at the present stage of its development. The purpose of the study is to identify the readiness degree of the EAEU member countries transition to integration in the monetary sphere in modern conditions. The study makes it possible to substantiate the idea that a currency union in the framework of regional economic integration should be viewed as a natural result of significant volumes of goods, services and investments movement between member countries. The necessity and possibility of creating a currency union are determined and evaluated from the standpoint of the trade intensity and investment flows between the member countries of the Eurasian Economic Union. The methodology of the study is based on the key ideas of the “optimum currency areas” theory. The statistical data on foreign investments in the EAEU countries, on the share of gross volumes of mutual trade in the total volume of foreign trade in the EAEU as a whole and in the EAEU member states, are given. Analysis of mutual trade and investment indicators showed an insufficient level of economic convergence in the EAEU, assessed from the standpoint of the mutual trade intensity and mutual foreign direct investment intensity. At the moment, the volumes and dynamics of trade and investment flow between the EAEU member states do not cause an objective need for a transition to monetary cooperation at the level of a currency union. This research allows us to consider the problem of transition to monetary integration between the countries participating in the EAEU from the importance standpoint of economic prerequisites. The practical significance of the work lies in the substantiation of the objective prerequisites for the formation and creation of a monetary union in the course of regional integration processes development. Key words: Currency union, optimal currency area, mutual trade intensity, mutual investment intensity, customs union.

Erratum: Following the Franco-German harbinger? The footprint of the Euro in regional monetary integration

Erratum: Following the Franco-German harbinger? The footprint of the Euro in regional monetary integration

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.

Lessons of the European crisis for regional monetary and financial integration in East Asia

The debt crisis in several member states of the euro area has raised doubts on the viability of the European Economic and Monetary Union (EMU) and the future of the euro. While the launch of the euro in 1999 stirred a lot of interests in regional monetary integration and even monetary unification in various parts of the world, including East Asia, the current crisis has had the opposite effect, even raising expectations of a break-up of the euro area. Indeed, the crisis has highlighted the problems and tensions that will inevitably arise within a monetary union when imbalances build up and become unsustainable. This article discusses the causes of the current European crisis and the challenges that EMU countries face in solving it. Based on this analysis, it derives five lessons for regional financial and monetary cooperation and integration in East Asia.

THE ROLE OF ASEAN EXCHANGE RATE UNIT (AERU) FOR ASEAN-5 MONETARY INTEGRATION: AN OPTIMUM CURRENCY AREA CRITERIA

The idea for regional monetary integration is grounded by the process of convergence theory within the member states. The paper analyses the possibility of monetary union in ASEAN-5 countries, Indonesia, Malaysia, Philippines, Thailand, and Singapore. In terms of volatility, by using nominal deviation indicator assessment, the ASEAN-5 currencies are suggested to peg their national currencies into Yuan since it empirically brings the lowest level of volatility, both during normal and crisis periods. Therefore, Yuan could be proposed as the anchor currency for ASEAN-5 countries. Moreover, valuing the AERU in terms of a weighed average of Yuan is important to determine which countries are considered to be an Optimum Currency Area (OCA). The results statistically suggest that all ASEAN-5 countries could be grouped as OCA according to exchange rate stability criterion.Keywords : Optimum Currency Area, AERU, ASEAN-5, Exchange Rate StabilityJEL Classification : D81, E52, F15, F36

THE ROLE OF ASEAN EXCHANGE RATE UNIT (AERU) FOR ASEAN-5 MONETARY INTEGRATION: AN OPTIMUM CURRENCY AREA CRITERIA

The idea for regional monetary integration is grounded by the process of convergence theory within the member states. The paper analyses the possibility of monetary union in ASEAN-5 countries, Indonesia, Malaysia, Philippines, Thailand, and Singapore. In terms of volatility, by using nominal deviation indicator assessment, the ASEAN-5 currencies are suggested to peg their national currencies into Yuan since it empirically brings the lowest level of volatility, both during normal and crisis periods. Therefore, Yuan could be proposed as the anchor currency for ASEAN-5 countries. Moreover, valuing the AERU in terms of a weighed average of Yuan is important to determine which countries are considered to be an Optimum Currency Area (OCA). The results statistically suggest that all ASEAN-5 countries could be grouped as OCA according to exchange rate stability criterion. Keywords : Optimum Currency Area, AERU, ASEAN-5, Exchange Rate StabilityJEL Classification : D81, E52, F15, F36

Lessons of the European Crisis for Regional Monetary and Financial Integration in East Asia

The debt crisis in several member states of the euro area has raised doubts on the viability of European Economic and Monetary Union (EMU) and the future of the euro. While the launch of the euro in 1999 stirred a lot of interest in regional monetary integration and even monetary unification in various parts of the world, including East Asia, the current crisis has had the opposite effect, even raising expectations of a break-up of the euro area. Indeed, the crisis has highlighted the problems and tensions that will inevitably arise within a monetary union when imbalances build up and become unsustainable. This note discusses the causes of the current European crisis and the challenges that EMU countries face in solving it. Based on this analysis, it derives five lessons for regional financial and monetary cooperation and integration in East Asia.

A IMPORTÂNCIA DE INSTITUIÇÕES FINANCEIRAS REGIONAIS PARA O FORTALECIMENTO DA INTEGRAÇÃO ECONÔMICA ENTRE OS PAÍSES DO MERCOSUL

Nesse trabalho, o objetivo é demonstrar a importância crescente de um conjunto de instituições financeiras no financiamento de investimentos produtivos e do balanço de pagamentos de economias que tomam parte em acordos regionais – tendo como base o caso do Mercosul -, bem como contextualizar a discussão da cooperação financeira no debate sobre integração monetária regional. Na análise macro das economias do Mercosul fica clara sua instabilidade estrutural e a necessidade de reduzi-la para que a própria integração possa avançar. Na perspectiva aqui adotada, a maior coordenação macro, que é de fato um pré-requisito para o avanço da integração, é vista como consequência do aprofundamento da cooperação financeira.

Promoting a greater financial stability after the 1997 and subprime crisis: exploring the opportunity of a regional monetary unit in East Asia

After the first Asian currency crisis, a financial turmoil has recently dragged the global economy along for the ride. We propose a roadmap for strengthening financial architecture in East Asia in confirming a scope for deeper monetary integration on the basis of their symmetry in macroeconomic disturbances. Specifically, we verify empirically via the Bayoumi and Eichengreen vector autoregression (VAR) approach the incidences of transitory and permanent shocks as a way of identifying plausible candidates to form an optimum currency area. A regional monetary integration would be to start with smaller sub-groupings that could culminate in a single currency area.

South-south monetary integration: the case for a research framework beyond the theory of optimum currency area

Optimum Currency Area (OCA) theory proves inadequate in the analysis of the new regional monetary integration schemes that have sprung up among developing and emerging market economies since the 1990s. Building on the concept of 'original sin' developed by Eichengreen et al. (2006), we argue that a different conceptual framework is needed as these regional monetary South-South integration (SSI) schemes differ fundamentally from North-South arrangements because they involve none of the international reserve currencies. In-sights from the cases of monetary south-south cooperation in Southern Africa, East Asia and Latin America suggest that SSI can have beneficial effects on macroeconomic stability. This paper sketches a first set of hypotheses on the necessary conditions for these stability gains to materialise.

RESERVE POOLING AND ITS IMPLICATION ON OPTIMUM CURRENCY AREA IN ASEAN

Regional economic integration in ASEAN, ASEAN Free Trade Area (AFTA), is expected to produce positive outcomes on economic growth in ASEAN especially through its impact on trade and investment. This idea can be strengthened if regional monetary integration is followed. Therefore, focusing on reserve pooling, which is one of the proxy for Optimum Currency Area (OCA) variables, this study intends to examine the feasibility of a common currency in ASEAN. In addition, this study also investigates this idea in the presence of external shock.

PRODUCTION NETWORKS AND THE OPEN MACROECONOMY

A key feature of globalization in the current era has been the rapid spread of cross-border production sharing in many regions of the world, including Europe, North America and Asia. The effects of these developments in the context of regional trade integration have been examined in the recent literature. This paper looks at their implications for regional monetary integration and exchange-rate policies. Cross-border production networks and the intra-industry trade associated with them affect exchange-rate behavior, balance of payments adjustment, and the transmission of shocks and disturbances. This paper examines the policy implications of regional production networks that (i) are confined to the countries of a given region, and (ii) involve a dominant extra-regional economy.

The role of regional financial arrangements and monetary integration in East Asia and Europe in relations with the United States

Regional financial arrangements and monetary integration in East Asia and Europe have made considerable progress in recent years. This paper discusses whether governments in both regions, Japan and Germany as the most advanced regional economies in particular, can use the new dynamics as levers to raise their status vis-à-vis the United States. It will be argued that activities are defensive rather than offensive, aiming at protecting the respective region from financial risk. Japan, in particular, would find it difficult to raise its status vis-à-vis the United States significantly by promoting regional financial and monetary integration, principal reasons being actor heterogeneity, the role of China, hesitation to bear burden and risk, and the historical legacy of a bank-oriented system.

Regional Monetary Integration Among Developing Countries: New Opportunities for Macroeconomic Stability Beyond the Theory of Optimum Currency Areas?

Optimum Currency Area (OCA) approaches turn to be inadequate in the analysis of the new regional monetary integration schemes that have sprung up among developing and emerging market economies. Instead, in accordance with the concept of ‘original sin’ (Eichengreen et al.) we argue that regional monetary South-South integration schemes that, unlike North-South arrangements, involve none of the international reserve currencies, have specific monetary constraints and implications which need to be duly considered. A first comparative analysis of three cases of monetary South-South cooperation in South Africa (CMA), East Asia (ASEAN) and Latin America (Mercosur) shows that these can indeed provide macroeconomic stability gains but that this strongly depends on the existence of economic hierarchies within these integration schemes.