By Cho Jin-seo
Staff Reporter

The continuing economic woes in Europe and the United States are cultivating a spirit of regionalism in China, Japan and South Korea, so much so that the three East Asian nations can and should upgrade themselves to become the world's economic center, according to some experts.

Top economic researchers from the three countries have gathered in Seoul for a two-day seminar at Seoul National University (SNU) that began Tuesday, with their main objective being the possible creation of a pan-East Asian economy.

Kim In-june, president of the Korean Economic Association and a professor at SNU, proposed linking the exchange rates of the Chinese yuan, Japanese yen and Korean won with one another, as a step toward a single regional currency like the euro in Western Europe.

Such a collective of East Asian currencies would boost regional investment and thereby reduce the global imbalance between Asia and the United States, he said.

"If global imbalances are adjusted in an unorganized fashion, the impact on both sides of the Pacific could be enormous. If left unadjusted, the global imbalance could lead to a second round of global currency and economic crises," he said in a keynote speech.

"Having said that, a key question is over what would be the most effective form of regional monetary cooperation to achieve the policy goal of exchange rate stability."

The Asian financial crisis in the late 1990s and the recent global crisis have alerted Asian nations that their economies are vulnerable to fluctuations of exchange rates, especially against the U.S. dollar.

To better cope with such instability, the three countries and several Southeast Asian nations are creating a multilateral currency swap program called the Chiang Mai Initiative to form a foreign exchange reserve pool of $120 billion.

Kim, however, said that the creation of a regional emergency fund is not enough to play the role of a lender of last resort.

"The most ambitious alternative of all would be monetary union, creating a single Asian currency. But a more realistic option is to create an exchange-rate arrangement based on a basket of East Asian currencies, modeled after the European Monetary System of the 1980s," he said.

The European Monetary System made the exchange rates of its member currencies move within a band of 2.25 percent, with the deutschmark playing the role of the anchor currency. Though there were several side effects, the system eventually paved the way for the creation of the euro.

The vision for a powerful East Asian Community was echoed in the speech given by Masahisa Fujita, president of the Japanese Economic Association. Fujita, who specializes in the relationship between geography and economies, said that the recent financial crisis is marking the beginning of an "East Asian Renaissance." He said that the region was the world's most prosperous area until the industrial revolution took place in Europe.

"Europe was the core of the world economy for a long time. Then, during the first half of the 20th century, the United States emerged as the next core. And now, for the last couple of decades, East Asia has been emerging as the third core of the global economy, and it is during this period that the latest global crisis occurred," he said.

Wishful Thinking

The academics' idea of creating a strong regional economy in East Asia couldn't escape skepticism in the market, though. The complicated regional politics and the nations' differing national interests make such a scheme merely wishful thinking, said Lee Sung-kwon, an economist at Shinhan Investment.

"The three nations have different economic priorities. It is questionable how they can sort out such conflicts of interest," he said, citing the contrasting economic conditions in Japan and China these days.

Furthermore, he said the current debt crisis of Greece is an example showing that having a single regional currency can bring detrimental effects to local economies.

"In my opinion, the single-currency scheme will bring more restrictions to the nations' economies than benefits," he said. "It seems we need more discussion on this topic."

cjs@koreatimes.co.kr