Summary

In this paper, we overviewed the current financial and monetary cooperation (the Chiang Mai Initiative) in East Asia. The Chiang Mai Initiative includes a currency swap arrangements for a currency crisis management and a surveillance process for a currency crisis prevention. After we overviewed the current Chiang Mai Initiative, we proposed further developments of the Chiang Mai Initiative. Moreover, we discussed a desirable exchange rate system for East Asian countries. It is proved that a currency basket system is desirable for East Asian countries after we take into account a fact that East Asian economies have strong economic relationships with intra-regional countries, the United States, and European countries. We investigated actual exchange rate systems that are adopted by the monetary authorities of East Asian countries. We focused on the Chinese exchange rate system reform that was announced on July 21, 2005. The Chinese government announced to shift from dollar peg system to a managed floating exchange rate system with reference to a currency basket. However, our empirical analysis showed that the Chinese monetary authority has little changed its exchange rate policies in terms of targeting the US dollar. We pointed ou