East Asian Regional Monetary Cooperation And China's Influence

The Asain financial crisis in 1997 engulfed the entire Southeast Asain countries and resulted in fatal injuries to their fiancial system. China made a statement to ensure the stability of the RMB exchange rate against the US dollar, which, to some extent, limited the deepening and spreading of the fiancial crisis in China; However, China still also could not completely avoid the influence caused by this fiancial crisis. After this crisis, all southeast countries were deeply awared how weaken they are when singly fighting against the financial crisis. They must united. This also strongly approved the importance and necessity of East-Asian Monetary Cooperation. Only though this, they can limit the spreading of the crisis, reduce the damage to their fiancial system casued by the crisis, so they cooperated. From'"10+3"'to CMI, the cooperation is on the road to perfection and maturity.But, the sudden financial crisis in 2008 brought fatal disaster and challenge to this monetary cooperation. And the inadequate of the monetary cooperation also exposed in this white war, which required the southeast countries to work together to accelerate the process of monetary cooperation.East-Asian Monetary Cooperation has always been an important acdemic research directions and discussion topics. This paper involves below main issues:a brief introduction to the process of East-Asian Monetary Cooperation, problems exposed during the cooperation, practical model and ways suitable for the cooperation, the significance of the cooperation to China and the roles that China's playing, and last, some views and suggestions regarding to China's policy to this monetary cooperation. Finally, I hope this paper will have some realistic significance to the East-Asian Monetary Cooperation reseach.This paper begins with a introduction to the proposal of OCA(the Optimal Currency Area) and development of traditional theory. From 1961, Mundell proposed the theory of OCA for the first time, to 1985 Koichi Hamada put forward the spilling effect theory, to 1990 Druckman proposed the cost benefit analysis to the OCA, to 1996 Bay-oumi, Eichengreen put forward OCA index method, and to 1997 Frankel's proposal to the Endogenous Money Supply of OCA. All these expound the theory of OCA and its development, also as a theory basis for the Monetary cooperation and then the basis for the whole paper.ChapterⅡpoints out the necessity and realistic basis of the monetary cooperation. As for necessity, first of all, it is the need of huge economic interest. Regional Monetary and Financial Cooperation can not only protect regional trading, but also effeciantly avoid exchange-rate risk, specially favorable for those south-east countries which foreign trade taking up a large proportion in their ecomony. Point 2, monetary cooperation can, to some extent, limit the spreading of financil crisis. The financial crisis in 1997 had caused varying degree of damages to those south-east countris's ecomomy and exchange-rate policy. And just for this crisis, they realized the improtance of monetary cooperation, and only the united that they can be strong enough to prevent and fight against financial crisis. Point 3, monetary cooperation is the need to promote futher development. As economic globalization continues to develop, countries becomes closer especially in currency field. Thus countries must have spilling effect problems on policy, which will weaken the efficiency of currency policy. On the contrary, reagional monetary cooperation can not only solve this problems, but also can reduce Welfare Loss. Last point, southeast monetary cooperation is favorable to the stability and balance of international financial market. Only establishment of the east Asain monetary coopetion, they can contend with EURO and US dollar. The last part of this chapter is about the realist basis of the monetary cooperation, mainly expounding from the aspect of mobility of the capital market and the opening degree of foreign trade.Chapter III begins with introduction of three models of monetary cooperation(Single Currency Monetary Union, dominate currency regionalization and Multiple-Currency Monetary Union model). Now the most mature regional monetary cooperation are the EMU and NAFTA. Combining the pros and cons of different modes with the pactical financial situation of those countries, the writer suggest a cooperation model which most suitable for the regional cooperation in East Asia. Considering the differences on economic develoment, political, culture and religious, also lacking of orgnizer of monetary cooperation, it is more practical applying Multiple-Currency Monetary Union model. It can be divided into several samll region first, which has similar finacial system. And the cooperation between these regions will become much easier. Naturaly, there will be East Asain monetary cooperation with Single Currency Monetary Union. The last part of this chapter is a review of the history of the monetary cooperation and a brief introduction about current cooperation situation.The frist part of chapter IV is about the shortcomings existing in the last monetray cooperation. First, the current currency exchange system is not good enough to shake off the impacts of the economic imbalance. Chiang Mai Initiative actually had many good proposals, such as supervisory control system, information sharing system and crisis prewarning system ect., but all these are rejected and only bilateral money exchange system was kept and underruning. So there must be a Behavioral & functional system to contral and coordinate the capital to finish the monetary cooperatioin. Second, weak east Asian financial system. Though, under continuing effort, Asian bond market was established and playing a positive role at perfecting financial market and stablizing the financial system. However, we should objectivly evaluate this role, its function on keep out financial dependence on outer financial market is still poor. Third, the function of Coordination Mechanism on currency exchanger rate has no substantial progress. Though, multilateral information exchange and crisis prewarning system have provided a convenient platform for timely communication, at the same time, there is also a shortcoming, that is cross and repeat during implement. The second part of this chapter is about constraints on monetary cooperation. Internal factors are economic development state, unbalanced marketization, politcal and culture difference. External factor is America, who has always been a economic power, polital power and military power, won't let any organization infringe upon his own interests! The last chaper, also the heart of this paper, is about the role that Chia's playing, the necessity and measures that taken in East Asian currency cooperation. East Asia monetary cooperation is conductive to China's sustained rapid development, helping China establish friendly neiboughood with other countries and promoting Chinese RMB's step to international market. Meantime, China should be focus on strengthening reginal cooperation with ASEAN, Japan and Korea to speed up China RMB's regionalization and internationalization. The most important is to actively involve in monetary cooperation and exert power to unite East Asian countries to establish a strong monetray cooperation region which can act as a counterweight to EU and NAFTA!...