An Asian Community Can Wait
European countries may join the AIIB to deepen their business and political ties with China, but their financial stakes in the outcome are limited. Japan, however, has much to lose if the AIIB does not work according to plan, which is why it would be wise to wait before deciding whether to sign up.
TOKYO – In the world of international finance, conflicting monetary and exchange-rate policies compete for advantage and countries battle for influence over the rules of the game. After all, just as investors compete to maximize their profits, countries compete to ensure that international rules and norms are agreeable to them. That is why agreeing to an international economic regime – say, establishing a fixed exchange rate, or adopting a common currency – is a deeply political decision. And today’s Asia faces many such decisions.
Economic integration is a hot topic in the region. From the negotiation of the mega-regional Trans-Pacific Partnership to the establishment of China-led investment platforms – including the Silk Road Fund and, most recently, the Asian Infrastructure Investment Bank (AIIB) – Asia is becoming more interconnected than ever.
As a result, some observers may find the notion of increased monetary integration – even the establishment of a fixed exchange-rate regime based on, say, the Chinese renminbi or the Japanese yen – highly appealing. But I would argue that the flexible exchange rates that prevail today remain Asia’s best bet for boosting prosperity and protecting it from shocks.