Illustration for TIME by Law See

The Brazilian crisis and the birth of the euro have focused attention in Asia on a critical question: Should the region's nations adopt new currency regimes? At one extreme are those touting currency-board pegs to the U.S. dollar, as practiced by Argentina and (less strictly) Hong Kong, as a way to avoid trauma. At the other are those who see in the euro an example Asia must follow if it is not to be tied to U.S. or European monetary coattails. In between are those searching for pragmatic ways of achieving exchange-rate stability, fostering regional identity and creating currency regimes that fit their economic needs and trade profiles.

One thing is clear: in the future, no one in Asia is going to follow the currency-board model, in which money supply is directly linked to foreign-currency holdings. Hong Kong is waiting for an opportunity to dismount this beast, which helped save it from the worst shocks suffered by South Korea and Thailand a year ago but which is now delivering a recession likely to last much longer than those of most of its neighbors. Even Joseph Yam, chief executive of the Hong Kong Monetary Authority, has come out in favor of a single Asian currency as a long-term goal.

But a single currency for the region is pie in the sky. Adopting one would require either the political and institutional integration achieved in Europe, which is unthinkable in Asia for at least the next century, or one currency's domination of the region. With two giant countries--Japan and China--competing for pride of place, the latter outcome is impossible. Japan's economy is not big enough, and its demographics will limit future growth. China's primitive financial structure, relatively low level of economic development and uncertain political stability would rule out the dominance of the renminbi, even if Beijing were to permit free movement of capital.

So is Asia stuck? Will the region's countries forever have to let their currencies float freely on a stormy global sea--or gyrate against each other as each links with its own unique combination of dollars, euros and yen? There is an alternative. The region can chart a path toward currency stability by creating an Asian Monetary Fund to supplement the IMF, just as the Asian Development Bank reinforces the World Bank. This would not be revenge for the IMF's wrong-headed policies in Asia during the crisis. It would be recognition that the IMF lacks the resources to be the global lender of last resort, a role to which it aspires. The Asia-Pacific region has a capital surplus and thus should not need outside currencies to serve as intermediaries for most capital movements, as is the case today.

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