Study On Exchange Rate Cooperation In East Asia

Under the open macroeconomic background, the economic growth of all the nations can not be achieved without coordination and cooperation with each other. Exchange rate cooperation is one of the most important aspects of economic cooperation. Whether East Asia can build effective exchange rate cooperation mechanism plays a vital role in competing with dollar area and euro area. The facts of Southeast Asian financial crisis also shows that disunited situation and lack of regional coordination in monetary field will bring disastrous consequences. Thus, nations in the region must enhance the exchange rate cooperation, establish the prevention mechanism of financial volatility and keep financial stability.There are four parts in this paper. In the first chapter, the paper mainly introduces the research background and significance of the paper. Under the background of global economy integration, the question of exchange rate system selection is a very important problem that every country has to face to. In the second chapter, the paper introduces a few important theories of exchange rate cooperation. They are international policy coordination in open economy, optimum currency area theory and theory of exchange rate target zone. In the third chapter, the present situation and existing problems of East Asia exchange rate cooperation are introduced. Chiang Mai Initiative and integrated Asian Bond Market are described. The last chapter is the key chapter of the paper. In this chapter, possibility of creating a common currency basket for East Asia is analyzed, and the impact of currency basket on monetary policy of all the nations is described. The paper considers that first element of an Asian approach towards creating a region of monetary stability should thus be to adopt common objectives for central bank policies in the region, and these should be stated in terms of an inflation target. To be compatible with liberalization of international capital flows, there should be no commitment towards maintaining a particular exchange rate level. Of course, this does not mean that the exchange rate should be ignored in the implementation of the monetary policy strategy. Indeed there is a presumption that attention should be paid to the information contained in exchange rate movements when the inflation targeting strategy is implemented. At last, the paper presents a possible way of establishing East Asia currency union.