Equilibration is then achieved through labour mobility that responds to these inter-regional wage differences. Furthermore, as has been found in Europe, through the imposition of the Maastricht criteria, commonality in fiscal conditions across countries is desirable for effective area-wide monetary policy.
Any movement towards greater monetary and exchange rate cooperation among Asian countries will need to pay explicit attention to this set of difficult issues. Meanwhile, there is no doubt that greater financial cooperation that leads to greater trade facilitation and fosters greater capital market linkages among Asian countries would be a move in the right direction.