Abstract

The process of economic integration in East Asia has increased the ranks of those who are calling for an extension of regional cooperation to the field of exchange rate policies, in order to safeguard and further promote the already strong intra-regional trade relationships. Coordination mechanisms that limit the variability between the exchange rates within the area, while allowing at the same time for a sufficient degree of flexibility against the currencies outside the region, could also facilitate a collective appreciation of East Asian currencies, encouraging a rebalancing of demand and a reduction in global balance of payments imbalances. However, economic and political factors highlight the challenges and the drawbacks associated with the development of monetary and exchange rate arrangements in the region.