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We investigate fluctuations in the nominal effective exchange rates (NEERs) of East Asian currencies and the Asian monetary unit (AMU), which is computed as a weighted average of East Asian currencies during the global financial crisis. We find that NEERs were more stable for countries that continued to follow a currency basket system during the global financial crisis.

Furthermore, we investigate the relationships among NEERs, AMU, and AMU deviation indicators, which indicate the extent of the deviation in the exchange rate of each East Asian currency from a benchmark rate given in terms of the AMU. By comparing NEERs with a combination of AMU and AMU deviation indicators, we find that there is a strong relationship between them, both before and after the global financial crisis. These results indicate that a coordinated exchange rate policy aimed at stabilizing the AMU deviation indicators will be effective in stabilizing the NEERs of East Asian currencies. In this respect, the AMU deviation indicators, which indicate intraregional exchange rates among East Asian currencies, play a crucial role.

Because NEER trade weights are widely similar among East Asian currencies, a policy aimed at stabilizing a home currency against its NEER may lead to a coordinated exchange rate policy without a common consensus among East Asian countries. In the future, however, coordinated monetary policies should be considered along with coordinated exchange rate policies.

Although China has claimed since 2005 that it will move towards a more market-oriented system of managing its foreign exchange, it has remained, in part, a managed economic system. This chapter examines the relative importance of fundamentalist, chartist and currency arrangements in determining the RMB exchange regime using both traditional linear and non-linear artificial intelligence models. We find that the emphasis on the US dollar as a reference currency has declined. Fundamentalist forces are becoming strong determinants of the currency exchange. The genetic programming approach is among the best performing in minimizing forecasting error.

The 1997-98 financial crisis has had a profound effect on how East Asian economies the role of the IMF and its strategic interests relative to those of the United States in the international financial regime. It has prompted them to create a regional mechanism for financial and monetary cooperation, ranging from deeper policy dialogue and surveillance, to a system of financial cooperation, and common exchange rate arrangements. This paper analyses the economic and strategic motivations behind this and outlines recent developments in financial cooperation in East Asia to provide possible directions for the future.

A network of bilateral swap arrangements under the Chiang Mai Initiative(CMI) needs stronger policy dialogue and surveillance to develop into a regional financing facility, a sort of East Asian IMF. The facility plays a role as an regional lender of last resort, providing short-term funds to a member country facing a temporary liquidity shortage and for market intervention to stabilize foreign exchange rate. East Asian countries need to achieve regional exchange rate stability. In the long run, the region may develop a common currency arrangement, but it cannot be expected in the very near future because there is no convergence of macroeconomic conditions, economic structure and systems. A realistic approach would be for East Asian developing countries to adopt a currency basket system to minimize the impact of dollar/yen exchange rate volatility on their economies. Strong political will and a vision for regional integration will be required to introduce it.

This paper investigates the validity of the expectations hypothesis for the term structure of interest rates in the context of the deposit interest rates in Kuwait. The data set covers average inter local bank interest rates on deposits of Kuwaiti Dinar (KD) with maturity of one, three and six months from the period June 1994 to August 2008. We utilize Johansen procedures to examine the relationship between spot and forward rates. Our findings show that the spot and forward rates are cointegrated for all cases, the one month interest rates, the three month interest rates as well as the six month interest rates. The explanation of this relationship indicates that the expectations hypothesis of the term structure of interest rates is accepted for the case of Kuwait.

This chapter examines exchange rate options for East Asian countries, taking into account their real economic linkages as well as their international financial relations. Particular consideration is given to possible exchange rate cooperation within the region. For this purpose, the literature on the optimal peg is reconsidered and subsequently extended to include a country's international financial asset and liability situation. That is, instead of focusing solely on nominal or real effective exchange rates, the chapter proposes a blend of “real” and “financial” exchange rates for analyzing “optimal” exchange rate policy.

The renminbi (RMB) has evolved in four phases since its mid-2005 unpegging from the US dollar. After a year's transition, the RMB's effective exchange rate traded for two years within narrow bands around an appreciating trend. That is, the RMB behaved as if it were managed to strengthen gradually against trading partners’ currencies. This experiment was interrupted in mid-2008 and the RMB stabilized against a strong dollar amidst the global financial crisis. If Chinese policy were to return to effective currency stability and other East Asian countries were to pursue similar policies, regional currency stability would be enhanced. That would create more favorable conditions for an evolution towards monetary cooperation.

The purpose of this paper is to study the process of price determination by the market in the existing variable fiat money regime and its consequences.

Scientific knowledge pertaining to units and measurement has been applied to study the issue of wealth measurement and to arrive at the consequences of monetary manipulation. As regards Shariah perspective it may be described as guided application of science to the issue of currency and wealth measurement to analyze and solve economic problems.

Manipulation of currency that is manipulation of quantity of what determines purchasing power of money does not allow market to determine just prices implying lack of justice in exchange. Profitability of economic activities no longer relates to their utility for the economy implying gross inefficiency in profit driven investment. Market fails to maintain economic balances. These amount to extreme losses. It has led to massive economic uncertainty, instability, disparity, corruption and conflicts. Economic growth, justice and peace become unattainable. It is a serious crime as currency being unit of wealth is the most important unit and it is strictly prohibited in Shariah. Unless corrected for monetary manipulation financial modes recommended by Shariah seem to be unjust and impractical.

Application of scientific approach and scientific knowledge to economic issues especially the issue of wealth measurement needs higher emphasis, efforts and resources.

Governments ought to be persuaded not to manipulate money. Right solution is to link currency with a standard basket of national products with sufficient weight for gold and silver having most stable purchasing power. Unless accounting is corrected for monetary manipulation preferred Islamic modes of finance seem to be unjust and impractical. Where currency is manipulated Shariah/justice requires accounting for dues, capital, profit and loss to be corrected for this manipulation and in present scenario relative change in Consumer Price Index and Whole Sale Price Index may be used as a measure of currency manipulation.

Monetary manipulation has been clearly defined and extreme severity of the problems it creates has been established. It is most important for researchers, academics, government functionaries, social workers and all those who are concerned with economic growth, justice and welfare.