Monetary Union: A Solution To International Monetary Policy Coordination

It has been proved that the independent monetary policy will be severely undermined in a world of dependence. In the old story, a changed policy in one country means little to another under the hypothesis of little countries, what has underlined in this free competition ideas is that the "separation of powers" is the optimal policy choice. However, what will happen when we consider the "big powers"? The effect of the policy carried out in one country will surpass the border of the country to other countries. The interdependence between economies leads to the interdependence of the policies. Therefore, the need for coordination between international monetary policies comes out on our schedule.'Cooper effects' and 'Hamada image' are models for international policy coordination. On the theory, the potential benefits of International coordination are undeniable. However, empirical results are inconsistent. Obviously, there is something impeding the effect of international coordination. This thesis deals with this problem and contends that the traditional international policy co-ordinations (fixed exchange rate system, information exchange, International Conference) haven't lived up to our expectation largely due to the issue of sustainability, a number of political factors and asymmetrical problems.As the second part of the paper, in chapter 3 the author recommended monetary union for a means to solve these problems. In the text the author proved the advantages of monetary union from various aspects such as the spillover effect, credibility and asymmetrical impact. Meantime, for the sake of integrity, the author also introduced in this part the standards of currency union and necessary cost-benefit analysis.Among the third part of the thesis, the author made a simple test on European Monetary Union, thereafter came to the conclusion that the euro zone is a good monetary union. When it comes to East Asia, we held that this area has not prepared itself for a monetary Union in the short run, and suggested a more practical method, namely 'step-by-step road map' for East Asia. Of course, what we need to emphasize is that our ultimate aim is to set up in East Asia a monetary union similar to the euro zone.