Monetary Integration In East Asia

In 1961, Mundell first put forward the theory of Optimum Currency Area (OCA) with the argument of fixed exchange rate and flexible exchange rate. Due to the outstanding contribution to international economics of OCA theory, he was the winner of 1999's Nobel Prize in Economics. In the following several decades, a large number of scholars developed the theory continuously and strongly put it into practice of monetary integration all over the world. The successful creating of Euro in 1st January, 1991 is the most influential example of the practice.The eruption of 1997 and 2008 financial crisis provided the background and motivation for East Asian monetary integration. Chiang Mai Initiative was signed in 2000, which was a milestone in the process of monetary integration and paved the road of further monetary cooperation in East Asia. The establishment of Euro was a significant guide for East Asia. On the base of experience and lesson from European monetary integration, the paper analyses East Asian's monetary integration in five parts with the OCA theory.Firstly, I elaborate the background and meaning of the paper and introduce related literature of monetary integration around the world.Secondly, after the review of the development of OCA theory, which was the theory of regional monetary integration, three main forms of currency union are put forward with the practice in Europe and Latin America. Simultaneously, the current integration method adopted by East Asia is discussed, namely a multiple-currency union.Thirdly I describe the achievements and three obstacles of East Asian monetary integration in detail.Fourthly, this paper discusses the feasibility of establishing a single currency union in East Asia by OCA theory judge criteria. On the basis of numerical analysis, this paper then compares the costs and benefits of joining in the currency union, and comes to the conclusion that it is natural of establishing a currency union within East Asia.Finally, according to the results of the previous chapter I consider monetary integration in East Asia is a hierarchical and gradual process. We can make some cooperation between second-level regional scopes and extend these second-level areas to a real single currency area when the conditions are mature.The main viewpoints and conclusions of the paper are as follows: Compared with the situation of EMS in 1979 it is likely to establish a currency union in East Asia. It has made some profound achievements since 1997. However, with respect to the whole phrases of monetary integration, East Asia is still at the tentative level which lacks a mature monetary mechanism. The coordination of regional exchange rate is the focus in East Asian monetary cooperation.Although East Asian monetary integration has not made much process in the whole region, the second-level regions cooperate frequently and satisfy the qualification of a single currency union, so the feasible pathway might be a multi-currency union in East Asia.It is critical for all countries to learn lesson from European Sovereign Debt Crisis. Whether the provisions in the Pact of Stability and Growth are consistent with the interests of each member, how to handle the problem of inconsistent economic targets among all members, as well as how to make full use of fiscal policy after giving away the right of drawing up monetary policy, not being to the prejudice of others in the region is the concern.