Sovereignty and Seignorage in Monetary Union: Comparing AMU with EMU

Abstract

This paper compares the costs of monetary integration in East Asia with those in Europe in terms of monetary sovereignty losses and seignorage revenue. The cost of monetary sovereignty loss in East Asia will not be as high as estimated a priori. The importance of active monetary policy has been diminished with the expansion of inflation after the Asian crisis. The effectiveness of monetary policy decreased with the liberalization of Asian financial markets. The integration process itself will turn East Asian countries into optimal currency areas due to the endogeneity of OCA criteria. Seignorage revenue in East Asia has been rapidly decreasing since the 1990s, although it is still high compared to Europe. Also, the imbalance between seignorage contributions and seignorage receipts is neither unique in East Asia nor much larger than that of Europe.