Edith Cowan University
Business and Law
School of Accounting, Finance and Economics
There have been increased debates among economic analysts and policy makers on the role of financial globalization in economic growth and the importance of openness to international trade followed the global financial crisis (GFC) of 2007-2009. The global crisis has affected both the developed and emerging-market economies in East Asia where major stock markets plunged along with the US market and many currencies also fell against the US dollar. Although the impact of the US-led GFC was less severe than the 1997-1998 financial crisis, a large empirical literature has emerged examining the future directions of monetary and exchange rate arrangements for many of the countries in the region The popular question asked in the literature: is East Asia the next optimum currency area after the European Monetary Union? This paper investigates the convergence of currencies in the East Asia region. Both the cluster analysis and time series tests of income convergence are used to determine whether increased trade and financial integration has led to currency convergence over the period January 1990 to June 2010. The countries included in this study are the high-performing East Asian economies, namely China, Hong Kong, Japan, South Korea, Taiwan and the five founding ASEAN member countries.