Preliminary Needs and Directions of Monetary Cooperation in East Asia*

This paper is concerned with analysing the prospects of closer cooperation in the conduct of monetary and exchange rate policy for the economies of East Asia. A number of possible forms that this may take are investigated including that of establishing an Asian Exchange Rate Mechanism and an Asian Monetary Union, as well as the necessary conditions that would need to be satisfied to make these possible and successful. Short, medium and long run agendas for the attainment of monetary and exchange rate policy cooperation are also explored. The experience of the Euro area members are discussed to identify important lessons for the East Asian economies should they decide to go down this route of closer monetary and exchange rate cooperation, as well as perhaps moving towards the longer term objective of economic and monetary union along the lines of that attained in Europe. The paper suggests that closer monetary and exchange rate policy cooperation is desirable for the economies of East Asia, particularly if they wish to avoid future exchange rate and financial crises in the context of globalised financial markets. By taking cooperative action they would be in a better position to resist the advers