budget deficits below 3 % of gdp, and only five had government debt levels of less than 60 % of gdp. only five economies had inflation rates within 1. 5 % of the three economies with the lowest rates. as for long - term interest rates, only six had bond yields within 2 % of the three economies with the lowest interest rates. perhaps more fundamentally, the degree of real economic convergence among asian economies is a lot lower than it was between european economies prior to the formation of monetary union. one measure of this is income dispersion, in 2003, the per capita gdp of japan was about us $ 34, 000, while that in the philippines was less than us $ 1, 000. real convergence matters because complementarity and similarity in production and economic structure reduces the likelihood of so - called " asymmetric " shocks, or shocks that hit all member states in a different way calling for different monetary policy responses - something that is not possible under a monetary union. for emerging market economies, financial disturbances are an increasingly prevalent source of asymmetric shocks : the best illustration of this in recent years is the asian financial crisis, and the differing effects - and the variety of responses - among the economies in the region may, for some, be the main argument against union. it is tempting to conclude that the lack of nominal and real convergence among asian economies is a serious barrier to a viable asian monetary union. however, it has been suggested that full convergence is not a necessary pre - requisite to successful monetary union, and that the act of forming a monetary union will, by itself, force greater convergence among its members. as governor noyer has just said in his presentation, the introduction of the euro has increased the correlation between the business cycles of european economies, and has led to a more homogenous monetary transmission mechanism. while the lack of economic convergence among asian economies may make an asian monetary union a more challenging prospect, it is interesting to note that quite a number of governments in this region have already chosen to sacrifice some monetary policy autonomy for exchange rate stability. hong kong, mainland china, and malaysia choose to fix their exchange rates against an external currency, the us dollar, while other regional economies operate managed floats. there are indications that some economies are considering using the renminbi as a reference currency in their currency regimes, although a hard peg to renminbi is still not possible until full convertibility is achieved. it might also be the case that, while asian

me briefly outline these three forms of integration. about half of total trade in the asia region is intra - regional trade. trade integration has been largely market - driven, and the process has stimulated the signing of various free trade agreements, which will, in turn, encourage further trade integration in the region. now it is true that slightly over half of trade within non - japan asia is processing trade geared towards meeting import demand outside of the region, in particular in the developed economies. but this reliance on demand from the developed economies has been decreasing, and is likely to continue to decrease. trade integration within the region is therefore likely to grow. financial integration in the region shows a more mixed picture, and can be said to be high or low depending on what exactly is meant by financial integration, which is not at all clear. in terms of foreign direct investment, the degree of regional integration seems high if we look at the available figures on the sources and destinations of fdi within the region. the most striking examples are the various economies in the region as a source of fdi for china, and as destinations for fdi from japan. but in terms of financial intermediation within the region - meaning the flow of savings into investments, other than fdi, through the banking, debt and equity channels - the degree of financial integration is not high at all. the very substantial, and growing, volume of domestic savings invested overseas goes mainly, on a gross basis, to the developed rather than the regional markets. there is, of course, traffic in the other direction, but this is of a much more volatile, potent, demanding, and at times predatory nature, and it can sometimes - as we saw in the late 1990s - be difficult to cope with, to put it mildly. there is now a common desire among economies within the region to reduce dependence on the recycling of domestic savings through the developed markets, and therefore reduce vulnerability to financial shocks, by promoting greater regional financial intermediation. a number of regional initiatives are being implemented, the most notable of which is the asian bond fund project, a collective initiative of 11 central banks and monetary authorities to develop bond markets in the region. a great deal of emphasis is also being placed on getting one's own house in order, by practising sound macro - economic policies and building robust institutions. some attempts have been made at financial infrastructure integration : in hong kong, in particular, we have been operating us dollar and euro clearing systems and opening link