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European Monetary Unification: A Few Lessons for East Asia
Author(s) -
De Grauwe Paul
Publication year - 2016
Publication title -
scottish journal of political economy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.4
H-Index - 46
eISSN - 1467-9485
pISSN - 0036-9292
DOI - 10.1111/sjpe.12108
Subject(s) - unification , economics , exchange rate , east asia , monetary hegemony , politics , european union , international economics , exchange rate regime , volatility (finance) , monetary economics , monetary policy , keynesian economics , macroeconomics , financial economics , political science , china , computer science , law , programming language
In this paper, I analyze the experience of European monetary and financial integration to shed some light on the question of the desirability and feasibility of monetary unification in East Asia. The experience of Europe shows that trying to fix the exchange rates when capital is freely moving is unsustainable and leads to frequent speculative crises. This leads to only two options: Either a monetary union or floating exchange rates. Monetary union requires very intrusive political unification. Given the complete absence of political unification in Asia, the only possible conclusion is that Asia will have to live with increasing exchange rate volatility.