An Asian Community Can Wait

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.

To understand the advantage of maintaining a flexible exchange rate, one need look no further than the recent growth trajectories of the advanced economies. After the 2008 economic crisis, the United States and the United Kingdom were able to employ unconventional monetary policies to escape recession. Japan adopted similar policies in late 2012 to escape two decades of stagnation.