Potential Currency Areas in East Asia Using United States, Japan, or China as the Monetary Anchor

The paper applies fuzzy clustering techniques to developed and emerging economies in East Asia in order to arrive at an identification of potential subgroups of economies for monetary union. The statistical criteria employed are those suggested by the Optimal Currency Areas theory and the period examined includes the recent global crisis. Three alternative monetary anchor countries are proposed, namely the US, Japan, and China and hence, to an extent the analysis does indicate the relative importance of the three world's largest economies to East Asia. In wake of the endogeneity view of the convergence criteria, founding member states of EMU are used as a point of reference. Findings indicate that certain East Asian countries are relatively prepared for integration whilst others are not. In some ways, results do also signify the dominance of Japan despite the prevalence of dollar standard in the region