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No. 12 — March 24, 2000

Feature Article

EAST ASIAN MONETARY UNION: MORE THAN JUST TALK?

Marc Castellano

Summary

Just a few years ago, the concept of monetary union in East Asia was regarded as little more than an intellectual fantasy. Significant changes in the global economy, however, have turned traditional thinking inside out. The rapid pace of regional integration, the experience of major financial crises and the emergence of the euro have caused policymakers to seriously consider the idea of an East Asian monetary union.

Of course, the implementation of such a grandiose plan would require substantial time and effort. Current economic disparities and political barriers clearly are prohibitive, but East Asia is growing closer. Moreover, a monetary union could exploit the global trend toward fewer currencies as well as satisfy the region's hunger for greater economic strength and stability.

Initially, countries may group together based on their similarities and develop cooperative arrangements to lay the groundwork for a future regional monetary union. Of course, a broad plan that outlines convergency requirements and establishes firm deadlines also is required. Yet little progress is likely unless the effort can secure the backing of strong political and economic forces.

A logical candidate for this role is Japan, the traditional engine of growth for East Asia. However, the goal of creating a yen bloc is not realistic because the region relies on the dollar for most international financial transactions, making it both inconvenient and risky for countries other than Japan to increase their use of the yen. Moreover, many East Asian victims of Japan's wartime aggression remain uncomfortable with the idea of placing the country in any kind of dominant position, economic or political.

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Weekly Review

SANWA BANK TO MERGE WITH TOKAI, ASAHI BANKS
--- by Douglas Ostrom

Less than 10 years ago, Japan was home to 13 of the biggest commercial banks anywhere. With the merger that Sanwa Bank, Ltd., Tokai Bank, Ltd. and Asahi Bank, Ltd. announced March 14, the ranks of top commercial banks headquartered in the world's second-largest economy will be reduced to five in the next two years. The banking industry has taken giant strides toward consolidation over the past decade, including tie-ups of regional banks, trust banks and still-smaller depository institutions as well as mergers among commercial banks. Although the weaknesses exposed during the protracted financial crisis of the 1990s provided a strong impetus for the restructuring, analysts are not convinced that the changes will leave the industry stronger or better able to withstand future difficulties.

 

TOKYO RETHINKS ENERGY POLICIES
--- by Jon Choy

Bowing to public sentiment and the economy's less-than-ebullient prospects, the government is reconsidering its plan for as many as 20 nuclear power plants to be built by FY 2010. The ambitious construction schedule was a keystone of Japan's long-term strategy for reducing its dependence on imported oil and for developing energy self-sufficiency. With the support of Prime Minister Keizo Obuchi, the Ministry of International Trade and Industry has tasked a new advisory body with a review of the nation's energy policy. It hopes to have final recommendations by April 2001. Even a sharp cut in the number of proposed nuclear generating facilities, however, is not likely to placate anti-nuclear activists or citizens concerned about the technology's safety.

 

WASHINGTON, TOKYO REMAIN APART ON KEY DEFENSE ISSUES
--- by Barbara Wanner

The victory of pro-sovereignty candidate Chen Shui-bian in Taiwan's March 18 presidential election — in defiance of People's Republic of China Premier Zhu Rongji's saber-rattling threat to Taiwanese voters only days before — understandably has heightened concerns about military stability in the Asian Pacific. Secretary of Defense William Cohen's 10-day tour through East Asia, which began March 8 and included stops in Hong Kong, Vietnam, Japan and South Korea, ostensibly was aimed at conveying Washington's continued commitment to ensuring peace in the region through its forward deployment of 100,000 troops.

 

CHINA REJECTS JAPAN'S INVITATION TO ATTEND G-8 SUMMIT
--- by Marc Castellano

Premier Zhu Rongji announced March 15 that the People's Republic of China will not join the summit of the leaders of the Group of Seven industrialized nations plus Russia, scheduled for July 21 to July 23 in Nago, Okinawa prefecture. Moreover, Mr. Zhu's planned visit to Japan this year will have "no relation to the G-8 summit." Beijing's cool response to Tokyo's unofficial invitation to attend the G-8 gathering, initially extended last fall, has been a diplomatic embarrassment for Prime Minister Keizo Obuchi, chairman of the 2000 summit.

 

NOTES

Outsiders, not to mention Ministry of Finance and Ministry of Foreign Affairs trade negotiators, assumed that this year's follow-up on implementation of the December 1996 transpacific insurance pact would be another scripted event. In their thinking, Tokyo again would be forced to defend its decision to allow the cross-market subsidiaries of Japan's big life and nonlife insurers as of January 2001 to offer policies now reserved largely for sale by foreign competitors against repeated charges by Washington that Japan had not earned the right under the transpacific accord to open up the so-called third sector to domestic newcomers that soon.

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