Future Directions for Monetary Policies in East Asia

It is perhaps too glib to record that the 1997–1998 financial crisis represented a watershed for the economies of east Asia. But it is certainly clear that many of the economic policies in the region, which had been viewed in a favourable light in the long years of spectacular economic growth, were reassessed in the light of the crisis. A critical part of this reassessment involved monetary policy and, its close cousin in an open economy, exchange-rate policy. Before the crisis, a de facto currency peg against the United States dollar formed the centrepiece of the monetary policy regimes of many of the countries in the region. But the crisis convinced almost everyone, if they had not been convinced by earlier crises, that such softly pegged exchange rates eventually prove unsustainable in a world of high capital mobility.