An emerging Asian Monetary Zone may be an answer for the troubled countries in this region looking for a more desirable international monetary system. After all, they have already witnessed a collapse of their dollar-linked economies and the end of the economic miracle.

Writing in the Asia-Pacific Review (Fall/Winter 1996), Nobuyuki Ichikawa of the Bank of Japan argues that many countries conveniently peg their currencies to the dollar for three important reasons. First, the currency peg system is a short cut to stabilising inflationary expectations and interest rates. Second, holding dollar-based assets and debts offers great convenience in both procurement and investment. Third, exchange rate stability against the US dollar is desirable because the US remains the largest trading nation on earth.

''In particular, because US imports are immense it means that exchange rate stability against the dollar is extremely important for many countries," he says. The US dollar is the predominant international currency, particularly with respect to international transactions in the private sector.

As far as the dollar-linked economies are concerned, the current international monetary system may no longer suit their interests. Since the US dollar plays a de facto role as the most important asset and transaction currency, the US significantly enjoys three advantages, according to Ichikawa. First, the US can avoid exchange risk in current/capital transactions. Second, it can make external payments and external loans that are based on its own currency, thereby financing current deficits easily. Third, the cost of macro-economic policy adjustment for dollar rate stability is borne by the country pegging its currency to the dollar.

A free-float currency regime, in theory, helps a country to automatically adjust its current account balance, but since the US dollar is a de facto international currency, ''the US current balance can, to a certain extent, be seen to be automatically adjusted through changes in the macro policies of its partner countries that execute the dollar peg," adds Ichikawa.

Thailand established a currency peg system, linked to the US dollar, in 1984. This regime worked largely because between 1985 and 1995 the US dollar weakened against the major currencies, reaching 79.80 yen at one point. However since 1995, the dollar has rallied against other major currencies, hence putting revaluation pressures on the Thai baht.

With the weakened economy and the high dollar, the baht was overvalued by about 10 per cent this year before its devaluation on July 2. The ensuing financial turmoil, which started in Thailand before spreading throughout the region, make it impossible to return to the dollar peg system.

Japan will have to take the leadership role in forging a new foreign exchange order in this region, possibly through becoming the largest export destination in East Asia to supplement the US role.

According to Dr Phisit Pakkasem, the former secretary-general of the National Economic and Social Development Board, now that the US dollar fixation is a thing of the past for Asian countries, a new mechanism to ensure currency stability to promote trade and investment must be found.

''It could be a basket of Asian currencies weighted on the trade pattern and not on the level of payment. The Asian monetary zone need not be a yen zone," he said.

Michel Camdessus, the managing director of the International Monetary Fund, recently rejected the notion that Southeast Asian countries would move away from their ''dollar zone" and move toward a ''yen zone."

''I'm not sure Japan would want that, and I'm sure that more countries in the region don't see any interest in entering any type of monetary zone,' Camdessus said.

Camdessus may be proved otherwise.