Optimum Currency Areas and Key Currencies: Mundell I versus Mundell II

The East Asian economies are increasingly integrated in trade and direct investment. More than 50 percent of their foreign trade is with each other. Both the high growth and level of, trade integration is similar to what the Western European economies achieved in the 1960s. So, in the new millennium, the inevitable question arises: is East Asia also an optimum currency area (OCA)? Despite the apparent success of the European Monetary Union, many writers familiar with the East Asian scene think not. Taking the seminal papers of Robert Mundell as the starting point, this paper first analyzes traditional theorizing on the pros and cons of international monetary integration and then suggests new approaches to the problem of international risk sharing in OCAs.