A Formula for Asian Monetary Cooperation

• Pages: 351-352

Page 351

In this year's Per Jacobsson Lecture, Joseph C. K. Yam, Chief Executive of the Hong Kong Monetary Authority, argued for greater monetary cooperation in Asia and suggested a strategy and agenda for such cooperation. Edited excerpts follow below.

Let me spell out how I think monetary cooperation in Asia should proceed. First, we must have clearly defined and realistic common goals. Notwithstanding increasing economic integration, the Asian economies are a diverse group in many respects. Reflecting this diversity, there are also dramatic differences in policies in terms of the objectives pursued and approaches used to achieve these objectives. With monetary policy, although there seems to be a clear consensus on the desirability of maintaining currency stability, there is great diversity on the degree of clarity with which this is defined. Given the differences in the economic and financial structure, on the one hand, and differences in policy objectives and approaches, on the other, the monetary transmission mechanism of Asian economies and their monetary reactions to internal and external shocks are also quite different.

How then should Asian economies pursue regional monetary cooperation? The extent of the diversity in Asia's economies clearly points to the inappropriateness of monetary integration, at least for the time being. Realistically, Asian monetary cooperation will have to be pursued in a multicurrency environment. Asian monetary cooperation is not about monetary integration. There has been no attempt to identify the pros and cons of monetary policy coordination. The contagious turmoil in the currencies and financial markets of Asia, however, will stimulate some interest in it. I expect some initiative in putting the matter on the agenda for future discussions among monetary authorities in the region.

By contrast, there is much enthusiasm among monetary authorities of the region for promoting Asian monetary cooperation when it does not inhibit the freedom to determine domestic policies. I am sure, for example, that we would be keen to discuss how to strengthen our monetary defensive mechanisms against attacks on our currencies, and how to enhance the pain tolerance level of our financial systems so that we can absorb financial shocks more effectively. There is also considerable interest in building more robust financial infrastructures-on the one hand, to...