East Asian Exchange Rate Coordination Mechanism

The international policy coordination becomes a kind of inevitable request under the economic globalization condition, and the monetary cooperation is an important respect among them. Professor Mundell, the Nobel economics Prize winner in 1999,once prophesied there would appear three currency areas over the next 10 years: Euro Area, U.S. dollar Area and Asian Currency Area, that is to say," Three Islands of Financial Stability " will become basic frameworks of the international monetary system in future. With the arrival of Euro, Euro Area have already taken shape basically; Meanwhile, the Dollarization in Latin America is in course of full preparation. Compared with this, the monetary cooperation in Asia is still in the stage of discussion and exchanging the view. But after going through the financial crisis at the end of the 20th century, various countries and area of East Asia hope to solve the exchange rate stability problem urgently from objective meaning and the subjective attitude. And it is one of them more practical imagination to set up the exchange rate coordination mechanism in East Asia, and it is an impassable stage in the course of monetary cooperation in East Asia.The paper's key research are the exchange rate coordination mode in East Asia and its feasibility, analyzing separately the "internal anchor", "external anchor" and "combinational anchor" exchange rate coordination mechanism, together with the feasibility of each kind of mode in detail .On the basis, I put forward my own view: To various countries or areas in East Asia, the realistic choice is : (1) to strengthen the Macroeconomic policy coordination; (2)to establish the East Asian Monetary Fund(EAMF); (3)to implement the exchange rate coordination regime of the monetary basket that pegs to "combinational anchor"(including U.S. dollar, Euro and Japanese Yen), which can be regarded as realistic and feasible scheme for Exchange Rate Coordination in East Asia.The full paper is divided into four parts altogether: First part, the necessity of setting up the Exchange Rate Coordination Mechanism in East Asia. The author explains the position and function of Exchange Rate Coordination Mechanism in East Asia firstly; secondly utilizes the elastic price model of exchange rate determined prove that Exchange Rate Cooperation have more stability than the unilateral managed floating exchange rate regime; Finally provides detailed analysis approach to prove that the exchange rate stability is a key to the economic stability in East Asia.Second part, the theory of exchange rate target zone and the practice of Europe. The paper starts from the theory of exchange rate target zone and emphasizes the mechanism of Krugman's model of exchange rate target zone especially. Then the author analyses the content, operation stage, system frameworks and existing problems of the multilateral exchange rate target zone of Europe, and draws the enlightenments to East Asia.Third part, the Exchange Rate Coordination Code in East Asia and its feasibility analysis. Firstly the paper has explained the suitability of the medium exchange rate regime theory for East Asia. Then the author especially analyses the "internal anchor", "external anchor" and "combinational anchor" Exchange Rate Coordination Mechanism, together with the feasibility of each kind of mode in detail.Fourth part, the realistic choice of East Asian Exchange Rate Coordination Mechanism. In sum, the article puts forward the realistic choice of East Asian Exchange Rate Coordination Mechanism: Every economy in East Asia ( except Japan ) should withdraw from the traditional peg to U.S. dollar regime collectively and implement the monetary basket (including U.S. dollar , Euro and Japanese yen ) regime that pegs to "combinational anchor" together. In present stage, the East Asian countries or areas together should peg to the Special Drawing Rights (SDR) so as "nominal anchor" to stabilize the exchange rate violent fluctuation.