A basket currency for Asia

The definitive version is available at www3.interscience.wiley.comEver since the outbreak of the currency crisis in East Asia in 1997, there have been continuing meetings and dialogues among East Asian countries to further regional monetary and financial cooperation. Many important questions have been addressed and some agreements reached, resulting in concrete achievements such as the Chiang Mai Initiative (CMI). There is, however, little agreement yet about the appropriate exchange rate regime for East Asia, although it is a crucial matter given the increasing interdependency among Asian countries. A Basket Currency for Asia deals with this issue. Arguing that the dollar peg was the root cause of the Asian currency crisis, it is suggested in the book that the currency basket system based on the US dollar, euro, and Japanese yen (possibly together with some Asian currencies) is the most desirable for Asian countries. The book is an important study with strong policy implications for East Asia. However, do the ideas in this book truly represent the views of those in all East Asian countries? Indeed, there is reason to doubt this because all the papers, contributed only by Japanese authors, ignore the alternative basket system composed of Asian currencies only. Before I examine this point in detail, it is worthwhile summarizing the main content of the book.