Exchange rate and monetary regime options for regional cooperation in East Asia

Although East Asian economies grow more open and interdependent, forming a single currency region is a very distant prospect. This is due to the lack of political commitment and experience with political cooperation in East Asia. On the other hand, forming a quasi-monetary union is a feasible option open to East Asia. In such a process, the East Asian countries would jointly permit greater exchange rate flexibility with intervention and adopt flexible inflation target to guide their monetary policies. Flexible exchange rate systems together with flexible inflation targets are suitable for lowering the variations in exchange rates and keeping inflation low and stable. The coordinated implementation of both flexible exchange rate and inflation target is an unavoidable step toward political and economic convergence among the East Asian countries. (C) 2005 Elsevier Inc. All rights reserved.