On Monetary Cooperation in
East Asia
In View of Experience with the
European Monetary Cooperation
Soko Tanaka
1
Experience with European
Monetary Cooperation
• 4 Institutional Components of the EMS
• Collective Foreign Exchange Rate
System: ERM → fixed exchange rate
system: Central Rates ± 2.25% Band
(±15% from 1993 to 1998)
• Supporting Credit Mechanism
• Surveillance Mechanism
• Currency Basket or Basket Currency: ECU
2
European M. Cooperation – Why?
• Smithsonian Band (Central Rate in
US$ ±2.25 %) → Intra-EC Band Too Wide
(±4.5%) → Narrowing Band (±2.25%) in 1972
• Avoidance of Currency Turmoil or Currency
Divide (→Economic Stagnation) inside the
region
• Capital Swings between $ & DM
→Independence from the US dollar
• European Single Currency in the future (1980s)
3
3 Steps of Euro. M. Cooperation
• 1970s: Wreck of Cooperation due to
Conflicts of Monetary Policy (Price
Stability vs. Growth)
• 1980s: Convergence of Price Trends –
from Crawling Peg to Fixed Rate
• Narrow Band vs. Capital Liberalization →
EMS Crisis in 1992/93
• Widening of Band: ±15% in 1993 →
Speculation-proof → Single Currency
4
East Asian Forex Rate Cooperation
– Why now?
•
•
•
Growing global imbalances: East Asia vs.
United States – Possible “Big Fall” of
US$ & Currency Turmoil in East Asia
Transition to more flexible foreign
exchange regime of Chinese yuan
(RMB)
Background: (1) Rising interdependence
of the intra-regional trade and FDI, (2)
Developing FTA building in East Asia
5
Framework: ASEAN + 3
• Asian Currency Crisis in 1997/98
• Chiang Mai Initiative (CMI)
• Summit Conference, Conferences at
Ministerial Level (Trade, Foreign, Finance)
• Setting: (1) Enlarged fund of CMI + Forex
Rate Regime under Finance Minister
Conference, (2) Permanent Office for
Cooperation
6
Time to Go: Price Stability
CHANG E IN CONSUMER P RICES1(ANNUAL)
Malaysia
Singapore
Thailand
Korea
Japan
% Per Annum
10
8
6
4
2
0
20
02
20
03
01
20
00
20
99
19
98
19
97
19
96
19
95
19
94
19
93
19
92
19
91
t
19
0
-2
19
9
•
Price Rise in East Asia: Comparable to Middle of 1980s in
Europe
7
Trinity Problem in East Asia
• Exchange Control → Forex Rate Stability
+ Monetary Policy Independence
• Room for Maneuver - Monetary Policy
Independence + Free Movement of Capital
+ Relative Forex Rate Stability by Massive
Intervention (Japan)
8
Factors to be taken into account for
a Forex Rate Cooperation
• To Avoid Excessive Dependence on US
Dollar: 1997/98 Crisis
• To Reflect Competitiveness of Members
• To be Flexible about Shocks
→ Crawling Band System with Wide
Fluctuation Band
9
DEY Baskets for Reference Rate
• Currency Basket Composed of US Dollar,
Euro and Yen → DEY basket
• No Trade-Weighted Basket (10 most
important trade partners): too much dollar
weight → Ex: Singapore $: USD 24%, E
22%, Y 20%, Others 34% → USD about
58% (Malaysia, China and Hong Kong )
• Trade Partners: Only USA, EU and Japan
10
CNYB And DEY of
CNY
Number of Unit and Weight of basket CNYB
0.14140
HK$
US$/HK$
12.65%
0.97953
Baht
US$/Baht
1.67%
0.60934
S$
US$/S$
2.69%
0.04441
Ringgit.
US$/Ringgit
2.79%
0.10602
Rupiah
US$/Rupiah
1.53%
121.06834
Pesos
US$/Pesos
1.02%
0.39627
NTD
US$/NTD
8.97%
2.88451
KRW
US$/KRW
8.62%
103.40749
RUB
USD/RUB
2.35%
0.49085
AUD
US$/AUD
2.02%
0.03291
CAD
US$/CAD
1.51%
0.02312
Exchange Rate of DEY and CNYB
1.1
1.05
1
0.95
0.9
CNYB
USD/DEYCNY
0.85
0.8
12/06/2003
16.51%
06/09/2003
US$/Euro
12/11/2002
Euro
06/14/2002
0.18082
12/16/2001
18.08%
06/19/2001
US$/US$
12/21/2000
USD
06/24/2000
22.19169
12/27/1999
19.60%
06/30/1999
US$/JPY
01/01/1999
JPY
USD/DEY USD/CNYB
1999/1/1=1
weight
Number of
Unit
Date
Weighted by exchange rate on Jan 1, '99 and trade of '02
11
How to make a currency basket
DEY
• Trade weight of USA, EU and Japan for
each country in 1998 (USA + EU + Japan
= 100.0%)→Previous Year of Start of
Cooperation
• Exchange Rate of $, Euro and Yen on the
previous day of Start of Cooperation into
DEY Equation (Other methods)
• Revision of the Baskets: Every Five Years
12
DEY Baskets
Weight of 3 Currencies in basket DEY
USD
EURO
Number of Units of Each Currency
USD
JPY
EURO
JPY
DEYCNY
32.69%
30.38%
36.93%
DEYCNY
0.32687
0.26026
41.81465
DEYBhat
34.79%
28.87%
36.34%
DEYBhat
0.34794
0.24729
41.14378
DEYKRW
42.70%
28.40%
28.90%
DEYKRW
0.42698
0.24327
32.72536
DEYS$
42.33%
32.85%
24.82%
DEYS$
0.42332
0.28138
28.10228
DEYRinggit.
41.57%
28.32%
30.11%
DEYRinggit.
0.41572
0.24261
34.08655
DEYRupiah
27.59%
37.68%
34.73%
DEYRupiah
0.27593
0.32274
39.32284
DEYPesos
46.40%
23.45%
30.15%
DEYPesos
0.46399
0.20091
34.13360
DEYHK$
38.50%
35.07%
26.43%
DEYHK$
0.38505
0.30038
29.92360
• 1 DEYKRW=0.42698$+0.24327E+32.725¥
• 1 DEYBaht=0.25354$+0.18020E+29.982¥
13
1.2
12/06/2003
06/09/2003
12/11/2002
06/14/2002
12/16/2001
06/19/2001
12/21/2000
06/24/2000
12/27/1999
06/30/1999
01/01/1999
USD/DEY USD/KRW 1999/1/1=1
Exchange Rate of DEYKRW
Exchange Rate of DEY and KRW
USD/DEYKRW
KRW
1.1
1
0.9
0.8
0.7
0.6
Date
14
0.6
Date
12/06/2003
0.7
06/09/2003
0.8
12/11/2002
0.9
06/14/2002
1
12/16/2001
Exchange Rate of DEY and KRW
06/19/2001
USD/DEYKRW
KRW
12/06/2003
06/09/2003
12/11/2002
06/14/2002
12/16/2001
06/19/2001
12/21/2000
06/24/2000
Exchange Rate of DEY and CNY
12/21/2000
Date
06/24/2000
0.6
12/27/1999
0.7
12/27/1999
0.8
06/30/1999
0.9
01/01/1999
1
USD/DEY USD/Baht 1999/1/1=1
1.1
USD/DEY USD/S$ 1999/1/1=1
USD/DEYCNY
CNY
06/30/1999
1.1
12/06/2003
06/09/2003
12/11/2002
06/14/2002
12/16/2001
06/19/2001
12/21/2000
06/24/2000
12/27/1999
06/30/1999
01/01/1999
USD/DEY USD/CNY 1999/1/1=1
1.2
01/01/1999
1.2
12/06/2003
06/09/2003
12/11/2002
06/14/2002
12/16/2001
06/19/2001
12/21/2000
06/24/2000
12/27/1999
06/30/1999
01/01/1999
USD/DEY USD/KRW 1999/1/1=1
DEY Rate - CNY, Baht, KRW, S$
Exchange Rate of DEY and Baht
1.2
1.1
USD/DEYBhat
Baht
1
0.9
0.8
0.7
0.6
1.2
Date
Exchange Rate of DEY and S$
USD/DEYS$
S$
1.1
1
0.9
0.8
0.7
0.6
Date
15
1
0.9
0.8
0.7
0.6
Date
12/06/2003
1.1
06/09/2003
USD/DEYPesos
Pesos
12/11/2002
Exchange Rate of DEY and Pesos
06/14/2002
Date
12/16/2001
0.6
06/19/2001
0.7
12/21/2000
0.8
12/06/2003
06/09/2003
12/11/2002
06/14/2002
12/16/2001
06/19/2001
12/21/2000
06/24/2000
12/27/1999
06/30/1999
01/01/1999
Exchange Rate of DEY and Ringgit
06/24/2000
0.9
12/27/1999
1
06/30/1999
1.1
USD/DEY USD/Rupiah 1999/1/1=1
USD/DEYRinggit.
Ringgit.
USD/DEY USD/HK$ 1999/1/1=1
12/06/2003
06/09/2003
12/11/2002
06/14/2002
12/16/2001
06/19/2001
12/21/2000
06/24/2000
12/27/1999
06/30/1999
01/01/1999
USD/DEY USD/Ringgit 1999/1/1=1
1.2
01/01/1999
1.2
12/06/2003
06/09/2003
12/11/2002
06/14/2002
12/16/2001
06/19/2001
12/21/2000
06/24/2000
12/27/1999
06/30/1999
01/01/1999
USD/DEY USD/Pesos 1999/1/1=1
DEY Rate: Ringgit, Rupiah, Peso, HK$
Exchange Rate of DEY and Rupiah
1.2
USD/DEYRupiah
Rupiah
1.1
1
0.9
0.8
0.7
0.6
1.2
Date
Exchange Rate of DEY and HK$
USD/DEYHK$
HK$
1.1
0.9
1
0.8
0.7
0.6
Date
16
1.2
1.1
12/06/2003
06/09/2003
12/11/2002
06/14/2002
12/16/2001
06/19/2001
12/21/2000
06/24/2000
12/27/1999
06/30/1999
01/01/1999
USD/DEY, USD/JPY
1999/1/1=1
DEY Rates and Yen Rate
Exchange Rate of DEY and JYP(USD)
US$/JPY
USD/DEYBhat
USD/DEYKRW
1
0.9
0.8
Date
17
01/14/2004
03/20/2003
05/24/2002
07/28/2001
10/01/2000
12/06/1999
02/09/1999
04/15/1998
06/19/1997
08/23/1996
10/28/1995
01/01/1995
USD/DEY 95/1/1=1
DEY Currency Block
Exchange Rate of DEY against USD
1.2
1.1
1
0.9
0.8
0.7
CNY
Bhat
KRW
S$
Ringgit.
Rupiah
Pesos
HK$
Date
18
Exchange Rate Of DEY Against USD (From Jan,99’)
Exchange Rate of DEY Against USD
USD/DEYCNY
USD/DEYBhat
USD/DEYKRW
USD/DEYS$
USD/DEYRinggit.
USD/DEYRupiah
USD/DEYPesos
USD/DEYHK$
1.05
1
0.95
0.9
0.85
12/06/2003
06/09/2003
12/11/2002
06/14/2002
12/16/2001
06/19/2001
12/21/2000
06/24/2000
12/27/1999
06/30/1999
0.8
01/01/1999
USD/DEY USD/N.C 1999/1/1=1
1.1
Date
19
Width of Crawling Bands
• Jan. 1 1999 – April 30 2004: Maximum
Fluctuation of Daily Exchange Rate vis-àvis DEY
• Category 1: Won $ & S$ → 13%
• Category 2: Baht, Yuan, Ringgit → 21%
• Category 3: Rupiah 55%, Peso 34%, but
about 20% after 2002
• Conclusion: width of the band = ±10%
20
01
/0
1/
19
06
99
/3
0/
12 199
9
/2
7/
19
06
99
/2
4/
12 200
0
/2
1/
20
06
00
/1
9/
12 200
1
/1
6/
20
06
01
/1
4/
12 200
2
/1
1/
20
06
02
/0
9/
12 200
3
/0
6/
20
03
0.0009
0.00085
0.0008
DEY/S$
01
/0
1/
19
06
99
/3
0/
12 199
9
/2
7/
19
06
99
/2
4/
20
12
00
/2
1/
06 200
0
/1
9/
20
12
01
/1
6/
06 200
1
/1
4/
20
12
02
/1
1/
20
06
02
/0
9/
2
0
12
/0 03
6/
20
03
0.12
DEY/Baht
0.13
Date
0.00075
0.0007
Date
01
/0
1/
06 199
9
/3
0/
12 199
9
/2
7/
06 199
9
/2
4/
12 200
0
/2
1/
06 200
0
/1
9/
2
0
12
/1 01
6/
06 200
1
/1
4/
2
0
12
/1 02
1/
06 200
2
/0
9/
2
0
12
/0 03
6/
20
03
DEY/CNY
0.15
0.14
0.00095
0.001
01
/0
1/
06 199
9
/3
0/
1
9
12
/2 99
7/
06 199
9
/2
4/
2
0
12
/2 00
1/
06 200
0
/1
9/
2
0
12
/1 01
6/
06 200
1
/1
4/
12 200
2
/1
1/
06 200
2
/0
9/
12 200
3
/0
6/
20
03
DEY/KRW
Exchange Rate Against DEY and Band3(1)
Exchange Rate Against DEY and Band3
Exchange Rate Against DEY and Ban3
0.0325
0.03
0.0275
0.11
0.025
0.1
0.0225
Exchange Rate Against DEY and Band3
Date
Exchange Rate Against DEY and Band3
0.7
0.65
0.6
0.55
0.5
Date
21
01
/0
1/
06 199
9
/3
0/
1
9
12
/2 99
7/
06 199
9
/2
4/
2
0
12
/2 00
1/
06 200
0
/1
9/
2
0
12
/1 01
6/
06 200
1
/1
4/
2
0
12
/1 02
1/
06 200
2
/0
9/
2
0
12
/0 03
6/
20
03
0.03
0.16
0.0275
0.15
0.025
0.14
0.0225
0.02
DEY/HK$
01
/0
1/
06 199
9
/3
0/
12 199
9
/2
7/
06 199
9
/2
4/
2
0
12
/2 00
1/
06 200
0
/1
9/
12 200
1
/1
6/
2
0
06
/1 01
4/
12 200
2
/1
1/
06 200
2
/0
9/
12 200
3
/0
6/
20
03
0.325
0.00018
0.3
0.00016
DEY/Rupiah
0.25
Date
Date
01
/0
1/
06 199
9
/3
0/
12 199
9
/2
7/
1
9
06
/2 99
4/
12 200
0
/2
1/
06 200
0
/1
9/
2
0
12
/1 01
6/
06 200
1
/1
4/
12 200
2
/1
1/
2
0
06
/0 02
9/
12 200
3
/0
6/
20
03
DEY/Ringgit
0.275
0.225
01
/0
1/
06 199
9
/3
0/
12 1999
/2
7/
06 199
9
/2
4/
2
0
12
/2 00
1/
06 200
0
/1
9/
12 2001
/1
6/
06 200
1
/1
4/
2
0
12
/1 02
1/
06 200
2
/0
9/
12 2003
/0
6/
20
03
DEY/Pesos
Exchange Rate Against DEY and Band3(2)
Exchange Rate Against DEY and Band3
Exchange Rate Against DEY and Band3
0.00014
0.00012
0.0001
0.00008
Exchange Rate Against DEY and Band3
0.0175
0.11
0.015
0.1
Date
Exchange Rate Against DEY and Band3
0.13
0.12
Date
22
Descriptive Statistics of Exchange Rate of National Currency
Against DEY
Descriptive Statistics of Exchange Rate of National Currency Against DEY
Mean
Median
Mode
Standard
deviation
Variance
Kurtosis
Skewness
DEY/CNY
0.12745
0.12709
0.11581
0.005955
3.55E-05
-0.56078
0.04832
DEY/Baht
0.02556
0.02512
0.02447
0.001227
1.5E-06
-0.11460
0.95017
DEY/KRW
0.00087
0.00086
0.00083
3.44E-05
1.19E-09
-0.24593
0.67964
DEY/S$
0.60435
0.60830
0.56571
0.016052
0.000258
-0.10656
-0.93787
DEY/Ringgit
0.27615
0.27597
0.25396
0.011359
0.000129
-0.55373
-0.04843
DEY/Rupiah
0.00012
0.00012
0.00011
1.15E-05
1.33E-10
1.28151
0.92312
DEY/Pesos
0.02185
0.02143
0.01726
0.002859
8.17E-06
-0.80262
0.35910
DEY/HK$
0.13595
0.13598
0.12369
0.006029
3.63E-05
-0.57698
-0.13965
Sample（ｎ)=1947
From Jan, '99 to Apr, '04
Kurtosis <<3 ⇒ We can assume there are low probability that the
distributions of Exchange Rate against DEY were Normal Distribution
23
Data
Section
-0
.01
-0 304
.01 51
12 94
-0 60
.00 58
-0 94 7
.00 75
-0 769 98
.00 13
-0 590 72
.00 67
41 65
-0 22
.0 1
-0 023 58
.00 37
05 55
0.0 52
01 943
0.0 231
03 66
0.0 016 4
04 27
0.0 800 2
06 87
0.0 585 9
08 48
0.0 370 6
10 09
0.0 154 4
11 70
93 1
93
08
Frequency
Histogram of Deviation (DEY/CNY)
Histogram of Deviation (DEY/CNY)
120
100
80
60
40
20
0
24
Frequency
120
100
accumulation
80
60
40
20
0
Data
Section
1.9
86
0.0 53E
00 -0
0.0 913 5
01 67
0.0 807 3
02 48
0.0 701 1
03 28
0.0 595 9
04 09
0.0 488 7
05 90
3 4
0.0 82
06 712
0.0 27
07 6 5
0.0 170 2
08 32
0.0 064 8
08 13
0.0 957 6
09 94
0.0 851 4
10 75
0.0 745 1
11 55
0.0 639 9
12 36
53 7
31
75
Histogram of Modulus of Deviation
(DEY/CNY)
Histogram of Modulus of Deviation(DEY/CNY)
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
25
Ｂａｎｄ
X=
∑x
i
n
∑ (x − X )
2
i
Std .Dev =
n −1
∑ (x − X )
2
i
Band1 = CV =
n −1
X
ai = xi − X
Ai = ai
N =0.9×n
Set A1<A2<A3・・・・・・<AN<・・・・・・An
Band 2 =
AN
X
26
Average of Exchange Rate against DEY,
Deviation And Band
average of
Exchange
Rate
Deviation at
accumulated
90%
Coefficient
of variation
(Band2)
DEY/CNY
0.12745
0.01056
8.28%
4.80%
DEY/Baht
0.02556
0.00195
7.64%
0.00003
3.95%
DEY/KRW
0.00087
0.00006
6.86%
0.60435
0.01605
2.66%
DEY/S$
0.60435
0.02614
4.32%
DEY/Ringgit
0.27615
0.01136
4.11%
DEY/Ringgit
0.27615
0.01978
7.16%
DEY/Rupiah
0.00012
0.00001
9.45%
DEY/Rupiah
0.00012
0.00002
16.64%
DEY/Pesos
0.02185
0.00286
13.08%
DEY/Pesos
0.02185
0.00459
21.00%
DEY/HK$
0.13595
0.00603
4.43%
DEY/HK$
0.13595
0.01040
7.65%
average of
Exchange
Rate
Standard
deviation
Coefficient
of variation
(Band1)
DEY/CNY
0.12745
0.00595
4.67%
DEY/Baht
0.02556
0.00123
DEY/KRW
0.00087
DEY/S$
Sample (n)=1947
From Jan, '99 to Apr, '04
Sample (n)=1947
From Jan, '99 to Apr, '04
27
DEY/KRW
0.001
0.0009
0.00085
01.01.99±10%
DEY/S$
01
/0
1/
19
06
99
/3
0/
19
12
99
/2
7/
06 199
9
/2
4/
20
12
00
/2
1/
20
06
00
/1
9/
20
12
01
/1
6/
20
06
01
/1
4/
20
12
02
/1
1/
06 200
2
/0
9/
20
12
03
/0
6/
20
03
0.13
DEY/Baht
0.14
Date
Date
01
/0
1/
19
06
99
/3
0/
19
12
99
/2
7/
19
06
99
/2
4/
20
12
00
/2
1/
20
06
00
/1
9/
20
12
01
/1
6/
20
06
01
/1
4/
20
12
02
/1
1/
20
06
02
/0
9/
20
12
03
/0
6/
20
03
DEY/CNY
E
01
/0
1/
19
06
99
/3
0/
19
99
12
/2
7/
19
99
06
/2
4/
20
00
12
/2
1/
20
06
00
/1
9/
20
01
12
/1
6/
20
01
06
/1
4/
20
12
02
/1
1/
20
02
06
/0
9/
20
03
12
/0
6/
20
03
01
/0
1/
19
99
06
/3
0/
19
12
99
/2
7/
19
06
99
/2
4/
20
12
00
/2
1/
20
06
00
/1
9/
20
12
01
/1
6/
20
06
01
/1
4/
20
12
02
/1
1/
20
06
02
/0
9/
20
03
12
/0
6/
20
03
Exchange Rate Against DEY And Band(1)
Sample(n)=1947 From Jan, '99 to Apr, '04
Emean
Band1
0.15
CNY
0.11
KRW
0.64
0.00095
0.0008
0.00075
CNY: 0.1087-0.1329
Baht: 0.0247-0.0302
KRW: 0.000750-0.000917
S$:
0.545-0.666
Band2
0.03
Baht
0.0275
0.12
0.025
0.0225
Date
S$
0.62
0.6
0.58
0.56
Date
28
01
/0
1/
19
06
99
/3
0/
19
12
99
/2
7/
19
99
06
/2
4/
20
00
12
/2
1/
20
00
06
/1
9/
20
12
01
/1
6/
20
01
06
/1
4/
20
02
12
/1
1/
20
06
02
/0
9/
20
12
03
/0
6/
20
03
0.03
0.024
0.021
01.01.99±10%
DEY/HK$
Ringgit: 0.237-0.290
Rupiah: 0.000114-0.000139
Peso:
HK$:
0.0232-0.0284
01
/0
1/
19
06
99
/3
0/
19
12
99
/2
7/
19
06
99
/2
4/
20
12
00
/2
1/
20
00
06
/1
9/
20
12
01
/1
6/
20
06
01
/1
4/
20
12
02
/1
1/
20
02
06
/0
9/
20
12
03
/0
6/
20
03
01
/0
1/
19
99
06
/3
0/
19
12
99
/2
7/
19
99
06
/2
4/
20
12
00
/2
1/
20
00
06
/1
9/
20
12
01
/1
6/
20
06
01
/1
4/
20
02
12
/1
1/
20
02
06
/0
9/
20
12
03
/0
6/
20
03
DEY/Ringgit
0.275
0.25
DEY/Rupiah
E
0.015
Date
01
/0
1/
19
99
06
/3
0/
19
99
12
/2
7/
19
99
06
/2
4/
20
00
12
/2
1/
20
06
00
/1
9/
20
01
12
/1
6/
20
01
06
/1
4/
20
02
12
/1
1/
20
02
06
/0
9/
20
12
03
/0
6/
20
03
DEY/Pesos
Exchange Rate Against DEY And
Band(2)
Sample(n)=1947 From Jan, '99 to Apr, '04
Emean
Band1
0.325
Ringgit
0.00018
0.3
0.00016
0.225
Pesos
0.116-0.142
Band2
Rupiah
0.00014
0.00012
0.0001
Date
0.00008
Date
0.15
HK$
0.027
0.14
0.018
0.13
0.12
Date
29
How to Crawl DEY Reference Rate
• ERM method: Revaluation or Devaluation of
Central Rates based on Inflation Gap (17 times
1979-1995)→ competitiveness of the members
• When a currency reaches fluctuation margin,
check inflation gap against the average of the
Members! → Intervention (CMI) or Crawling
• Crawling (devaluation): Cumulative inflation gap
10% → 10% devaluation of DEYPeso →
1 DEYPeso (New) = 0.9 x 1 DEYPeso(old) =
0.41759$ + 0.18082E + 24.285Y
• Crawling (revaluation): Same method
30
Width of Band: Widened or
Narrowed over time?
• Stability or Flexibility?
• Liberalization of Capital Accounts → More
Flexibility ?
• ERM Wider Band:±15% (08.199312.1998): Core Countries → inside
±2.25% Band (de facto) since 1996
• 10% band enough to be flexible for East
Asia? → Price Stability of the Members
31
Problems of competitiveness
• Inside East Asia: ±10% Band and Crawling of
DEY Rate based on inflation gap
• Vis-à-vis the rest of the world:
(1) Currency Basket: Weighted Average of
the 3 Main Currencies → Competitiveness
vis-à-vis the World Market
(2) “Big Fall” of the US Dollar → Japan’s
Massive Intervention near the PPP Rate
(3) Cooperative Intervention of Japan, USA and
East Asian Countries
32
Deutsche Mark as an anchor
• Market chooses an anchor → Forex Transaction Cost:
proportional to “Volatility” of Currency Pair traded and
inversely proportional to Transaction “Turnover”
(Quality and Quantity)
• Trade Vehicle Currency or Forex Vehicle Currency?
→ D-Mark as Forex Vehicle on European Spot Markets
around 1990 (Trade Invoicing Currency → Inertia)
• Forex Rate Stability of ERM vs. Instability of the US dollar
• Transaction Turnover Increased in Capital Transactions in
Europe
• Self-reinforcing Effect of Regional International
Currency
33
Japanese yen as an anchor?
• Yen: Volatility + Little International Use
• Foreign Exchange Rate Stability vis-à-vis
East Asian Currencies by DEY Basket
• Transaction Volume: Increase of Capital
Transactions in East Asia in Yen or East
Asian Currencies
• Development of Asian Bond Market
• Strengthening of Tokyo Financial Market
• Difficult Competition for the Yen vs. US$
34
FTA and CU in ASEAN+3
• Can trade integration be endogenized?
• FTA → CU: autonomous development?
• CU has CET (Common External Tariff) and
Common Authority to manage CET(→ WTO
Round)
• CET: possible in East Asia?
• A Korea = Japan CU as First Step
• FTA + PESC (Pan-European System of
Cumulation of Origin) → Pan-ASEAN+3 System
of Cumulation of Origin → ASEAN+3 FTA
35
Further Development of DEY
Basket
• Single Currency Basket in ASEAN+2
• ACU (Asian Currency Unit) of ASEAN+3
36