On regional monetary arrangements for ASEAN

This paper analyzes the extent to which ASEAN may be suitable for a regiona l monetary arrangement. On the economic front, we review evidence on patter ns of trade, economic shocks, the extent of factor mobility, and the moneta ry transmission mechanism. We find that ASEAN today is less suitable for a regional monetary arrangement than the Euro area was before the Maastricht Treaty, but the differences are not large. On the political front, we analy ze the prerequisites for monetary integration in light of 50 years of Europ ean experience. We conclude that a firm political commitment would be key t o ensuring that an attempt to form a regional monetary arrangement is not v iewed as simply another fixed exchange rate system open to speculative atta ck. That commitment would have to be strong enough to survive for an extend ed period and to support difficult decisions such as rendering the central bank independent, adhering to fiscal and exchange rate arrangements even if the policy stance conflicts with that which would be adopted on the basis of purely domestic considerations, and accepting supranational directives. These are very considerable prerequisites for success. J. Japan. Int. Econ. , June 2000, 14(2), pp. 121-148. International Monetary Fund; University of California, Berkeley; and International Monetary Fund. (C) 2000 Academic P ress Journal of Economic Literature Classification Numbers: F33, F36, F41, F42.