Impact of Monetary Regime and Exchange Rates on ASEAN Economic Integration

Abstract

The ASEAN countries have experimented contrasted exchange rate regimes since the 1990s. The Asian crisis of 1997 has shown the limits of a simple dollar-peg policy without formal institutions. During the 2000s much effort has been devoted to improving monetary and financial cooperation at the regional level, especially with the Chiang Mai initiative and the Asian Bond market. But results have been limited, mainly due to political issues with the underlying competition between China and Japan. The financial crisis of 2008 has given new interest to the question of monetary cooperation at the regional level. Due to the high degree of heterogeneity of East Asian countries, it appears necessary to preserve the possibility of exchange rate adjustments in a future exchange rate regime. Various forms of monetary regime have been proposed from the Asian Currency Unit (ACU) to the common currency basket or the yen block or the yuan block in a long-term perspective, with improvement at the level of institutional forms, such as an Asian Monetary Fund and Asian bond markets. However obstacles remain the same with a lack of political project and the will of China to preserve its autonomy. A long transition period with adjustable exchange rates regime, based on different types of institutions, might be the more likely, before, may be in the long term, the settlement of a yuan block, which does not mean a yuan zone.