RMB Internationalisation and Currency Co-operation in East Asia

This paper scrutinises the state of RMB internationalisation and its likely progress over the coming years and discusses its implications for currency co-operation in East Asia. As part of its internationalisation, the RMB is gradually delinked from the dollar, which will effectively put an end to the East Asian dollar standard that has shaped the region's financial architecture over the last three decades and that has provided a relatively high degree of intra-regional exchange rate stability. Because of the close trade and investment ties that have developed across the region, the East Asian countries, especially the ASEAN countries which are striving to create an ASEAN Economic Community, will continue to manage their exchange rates and stabilise their currencies against one another to facilitate cross-border investment and commerce. But instead of a replacing of the dollar standard with an RMB standard we are likely to see some rather loose and informal exchange rate co-operation in East Asia based on currency baskets, with China herself moving towards a managed exchange rate system guided by a currency basket

European Financial Integration and the Financing of Local Businesses in the New EU Member States

This paper explores the degree of financial market integration between the new and old EU member states. It also considers the likely effects of the ongoing integration process on the new members’ financial sectors. In particular, the paper discusses the implications of the high concentration of financial services and the dominance of foreign-owned institutions for the provision of financial services to small and medium-sized enterprises (SMEs) in the ten accession countries. Using enterprise data on 2,427 firms, the paper finds that access to finance still constitutes a major problem for business development and that financing conditions are considerably more difficult for SMEs than for larger entities

Economic Cooperation in ASEAN and the Rise of China

Over the past decade, the Association of Southeast Asian Nations (ASEAN) has shifted from its original focus on regional peace and stability toward embracing a progressively economics-dominated agenda. A multitude of initiatives concerning cooperation in the areas of trade and finance have been launched. At the 2003 ASEAN Summit in Bali, ASEAN leaders even declared the goal of establishing an ASEAN Economic Community by 2020. This paper discusses two factors that have contributed to ASEAN's increasing focus on economic cooperation: (1) the Asian financial crisis, and (2) the emergence of China as a major international and economic power. It is argued that these determinants have paved the way for closer economic cooperation within the region despite the great heterogeneity and conflicting interests of the ASEAN member countries

Lessons of the European Crisis for Regional Monetary and Financial Integration in East Asia

The debt crisis in several member states of the euro area has raised doubts on the viability of European Economic and Monetary Union (EMU) and the future of the euro. While the launch of the euro in 1999 stirred a lot of interest in regional monetary integration and even monetary unification in various parts of the world, including East Asia, the current crisis has had the opposite effect, even raising expectations of a break-up of the euro area. Indeed, the crisis has highlighted the problems and tensions that will inevitably arise within a monetary union when imbalances build up and become unsustainable. This note discusses the causes of the current European crisis and the challenges that EMU countries face in solving it. Based on this analysis, it derives five lessons for regional financial and monetary cooperation and integration in East Asia.european crisis; euro area; european monetary union; financial integration; east asia

The Political Economy of Japanese Monetary and Exchange Rate Policy

This study analyzes the political economy of Japanese monetary and exchange rate policy, with particular emphasis on the Japanese position regarding East Asian monetary cooperation and integration. We try to disentangle the factors and interest structures behind the polices taken in order to infer how the Japanese position regarding regional monetary cooperation might evolve over time. The analysis shows that while the current incentive structure within the Japanese economic and political system gives little room for a far reaching commitment of the Japanese government to engage in regional monetary cooperation, a further integration of the Japanese economy into the regional economy and a growing dependency on the East Asian market are likely to shift the equilibrium in favor of regional cooperation

Chinese Monetary Policy and the Dollar Peg

This paper investigates to what extent Chinese monetary policy is constrained by the dollar peg. To this end, we use a cointegration framework to examine whether Chinese interest rates are driven by the Fed's policy. In a second step, we estimate a monetary model for China, in which we include also other monetary policy tools besides the central bank interest rate, namely reserve requirement ratios and open market operations. Our results suggest China has been relatively successful in isolating its monetary policy from the US policy and that the interest rate tool has not been effectively made use of. We therefore conclude that by employing capital controls and relying on other instruments than the interest rate China has been able to exert relatively autonomous monetary policy

Too Much to Lose, or More to Gain? Should Sweden Join the Euro?

This paper considers the costs and benefits of Sweden joining the European Economic and Monetary Union (EMU). We pay particular attention to the costs of abandoning the krona in terms of a loss of monetary policy independence. For this purpose, we apply a cointegrated VAR framework to examine the degree of monetary independence that the Sveriges Riksbank enjoys. Our results suggest that Sweden has in fact relatively little to lose from joining EMU, at least in terms of monetary independence. We complement our analysis by looking into other criteria affecting the cost-benefit calculus of monetary integration, which, by and large, support our positive assessment of Swedish EMU membership

Regional Financial Integration in Sub-Saharan Africa - An Empirical Examination of its Effects on Financial Market Development

This paper examines the effects of political agreements on regional financial integration (RFI) on financial market development and access to and cost of finance in Sub-Saharan Africa. Our results suggest that RFI positively affects financial development - measured very broadly as the size of the financial sector, including the liabilities of the central banks - when combined with a sufficient level of institutional quality. If institutional quality is below a threshold level, RFI apparently has negative effects on financial development. However, we can find no significant effects of RFI on the size of the private financial sector or on the efficiency of the banking sector. Regarding the effects of RFI on access to and costs of finance of enterprises in SSA, our results are mixed. We can find no significant effect of RFI on access to finance for all firms in the aggregate, but the results indicate that RFI actually impedes small firms' access to finance. Furthermore, there is a significant positive influence of foreign bank involvement on the severity of the credit constraint for small enterprises, while we don't find such an influence for large enterprises. These results provide some support for the foreign bank barrier hypothesis in the context of RFI. --Regional financial integration,Sub-Saharan Africa,financial development,access to finance

ASEAN Financial Integration in the Light of Recent European Experiences

This article reflects on the ambitions of the Association of Southeast Asian Nations (ASEAN) to foster regional economic and financial integration among its member countries against the backdrop of the European financial crisis. Based on a review of the European experiences with financial integration since the 1970s, this article critically examines the potential risks associated with the creation of a financially-integrated ASEAN Economic Community and the implications for policy autonomy of ASEAN members. It outlines the regulatory and institutional requirements that need to be put in place in order to minimize financial stability risk if an integrated financial sector across ASEAN is aimed for