European monetary unification: a few lessons for East-Asia

In this paper I analyse 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.