Abstract

This article predicts future policy configurations of PRC (People’s Republic of China) and East Asian emerging economies using Mundell’s trilemma and its quantitative measurement. Due to fear of capital flows and exchange-rate volatility, the East Asian emerging economies may still choose a collective exchange rate stability mechanism, which constitutes exchange rate stability, monetary independence, and limitation on capital flows with the support of precautious reserve accumulation and multilateral currency swaps. That is, a Bretton Woods-style mechanism will still be feasible after the global financial crisis. On the other hand, East Asia may be willing to decrease precautious reserve accumulation once a new international currency can be launched. However, the PRC’s attitude will be the critical factor.

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