Monetary Integration Challenges in the Asia-Pacific Region

Monetary integration in Asia has been a hot topic for years. Proponents justify regional cooperation by proving a range of benefits. The importance of their arguments stems from the fact that exchange rate instability plagues Asian countries. The competitiveness of Asian economies, being export-oriented, relies on exchange rates. In the past, macroeconomic stability was achieved through use of hard pegs. However, the costs of fixed rates called for alternative solutions. Instead, for national regimes in the Asia-Pacific region it may be feasible to introduce a common basket peg, or even a common currency, to cope with exchange rate-related problems. Successful management of regional policy may lead to an Asian Monetary Union and would not be easy. Not only must economies converge, but a great deal of political will and solidarity would be required. This paper discusses alternative solutions and offers a correlation analysis of business cycles showing the current situation in Asia