Abstract:

The Asian financial crisis and European debt crisis have been taken by many scholars as the evidence that the exchange rate system may cause the financial crisis (Tsangarides, 2012; Bordo & James, 2014). However, there still have been furious disputes over whether it is the fundamental cause, which is critical to predict the future of the common currency (Ishaq & Atiq, 2013; Stiglitz, 2016). Focusing on the Asian financial crisis and European debt crisis, along with the Eurozone and ASEAN, this paper gives a comparative review and outlook to the relationship between exchange rate system and financial crisis. At first, the extent that the exchange rate systems caused these two financial crises were examined through case studies. Then based on it, the common currency's prospects for Eurozone and ASEAN were quantitively analyzed from the perspective of financial crisis avoidance. In this paper, we believe that the exchange rate system is not the fundamental cause but only a catalyst to both crises. In Asian financial crisis, it only works as a part of whole policy framework that aims to attract massive capital infusions. In European debt crisis, it only intensifies the economic and political dispersions that have been rooted in the union's original design. From the perspective of financial crisis avoidance, we hold that the basic feasibility for continuing the Eurozone is diminishing but the crisis risk of exiting is rather high given the low effectiveness of monetary policy brought by the impaired capital mobility; the basic feasibility for a common currency in ASEAN is increasing but the crisis risk of entering is also raised by the financial contagion and deadlocks in risk sharing. This paper provides a valuable insight into the exchange rate system's positions in the two crises and gives some original thoughts on the prospects of the common currency for Eurozone and ASEAN, which is helpful to the financial crisis prevention and common currency implications.