Monetary Unification In East Asian Study Based On Optimum Currency Area Theory

Under the background of economic globalization, various forms of regional economic cooperation are developing fast. A growing number of free trade areas have been formed or under development worldwide. Early in 1961, Robert Mundell proposed a theory of optimum currency areas, regarding to regional monetary cooperation. Its fundamental conception is:in a particular area, the general means of payment is a single common currency, or several currencies which have unlimited convertibility among them; the exchange rates among these several currencies peg to each other when conducting monetary transactions, i.e., the fixed exchange rates, while the exchange rates fluctuates between the currencies of those countries outside the region. The introduction of the euro and the rapid growth of the dollar area made validation to the correctness of the regional economic theory. East Asia's regional economic and trade ties more closely, but the regional monetary cooperation has developed rather slowly. In order to withstand a variety of external shocks in the midst of financial globalization and frequent financial crisis, strengthening regional monetary cooperation has become an inevitable choice.The East Asia financial crisis lit the fuse of monetary cooperation in the region, and the outbreak of 2008 global financial crisis caused by the U.S. subprime mortgage crisis added propellant to the final implementation of such cooperation. In the long run, establishing a single currency zone as the EU through regional monetary cooperation would be East Asia's the ultimate goal, whereas there is a great gap to the establishment of a single currency zone in East Asia, judging from the evaluation result based on the static criteria of optimum currency areas theory. Wherefore, the establishment of the East Asian monetary area can be considered a step-by-step implementation. Based upon this cognition, domestic and foreign experts and scholars have raised a wide range of theoretical options. Among these, the three scenarios below are most representative. Namely, a) Further developing based on the present currencies exchange system, b) Establishing first a sub-regional currency zone then integrating step by step, c) Gradually integrating currency basket system. These three scenarios have their pros and cons. With comprehensive comparisons, the author of this paper believes the second scenario is the most effective, beside our country has already begun to promote the internationalization of RMB. The last part of this paper makes some suggestions regarding how China takes initiatives in the East Asia monetary cooperation as well as how to solve the problems we may encounter in the internationalization process of RMB.