The leaders of the Association of Southeast Asian Nations and Japan, China and South Korea (ASEAN-plus-3) announced in December 2005 their determination to realize the East Asian Community.

EAC has remained a dream so far because of the complexities of East Asia, particularly the mutual distrust and difficult emotional state between Japan and China. However, a fairly promising path has surfaced for realizing EAC through financial cooperation by ASEAN-plus-3.

This process has already reached the midway point. A December 2011 joint financial agreement by the prime ministers of Japan and China is expected to accelerate the process. They agreed on two points:

• To develop financial markets in Japan and China so that Japan-China trade can be settled by the Japanese yen or the Chinese renminbi instead of by the dollar.

On June 1, interbank markets for direct trading between the yen and the Chinese yuan opened in Tokyo and Shanghai.

• To accelerate financial cooperation among ASEAN-plus-3 members.

In the face of the European sovereign debt crisis, the two countries are strengthening financial cooperation to help maintain economic stability in East Asia.

Zhang Ming, economist at the Chinese Academy of Social Sciences, noted that financial cooperation in East Asia has "crisis-driven characteristics" of making progress when a serious crisis forces shelving temporarily political or historical problems between the two countries.

The ASEAN-plus-3 summit started in 1997 at the height of the Asian financial crisis. ASEAN-plus-3 founded the Chiang Mai Initiative (CMI), a currency swap arrangement to cope with emergencies and then increased its size substantially in the course of 10 years. To strengthen the cooperation framework, finance ministers' meetings, acting finance ministers' meetings and task force meetings have been routinized. The ASEAN-plus-3 Macroeconomic Research Office (AMRO) was created in 2011.

Takeshi Kurihara, director of the Regional Financial Cooperation Division of the Finance Ministry, who has taken part in that process, noted at the 2011 annual conference of the Chinese Society of World Economics that an agreement on deeper financial cooperation is feasible among East Asian countries, though it will take a long time due to differences in political systems and stages of economic development. He said the past 10 years were for founding and organizing the CMI, and that the next 10 years would be for maturing it.

Now, ASEAN-plus-3 once again is facing a serious crisis. Vice Minister of Finance for International Affairs Takehiko Nakao said in a lecture at Peking University in March: "Our experience at the time of Lehman crisis (fall 2008) and the latest euro crisis shows that, in such crises, interbank funding markets can become clogged and U.S. dollar liquidity can drain very rapidly. We must avoid situations where smooth financing for trade and investment in Asia is hindered and the real economy is negatively impacted just because of difficulties in U.S. dollar liquidity. We need to work on promoting the use of our own currencies in the region."

AMRO Director Wei Benhua said his office would play its part to help safeguard ASEAN-plus-3 from global uncertainties and to contribute to the region's stability, growth and prosperity. Japan and China are working together on upgrading their financial cooperation to a level that secures the stability of East Asian economies

China made up for its plummeting exports in the wake of the 2008 Lehman Brothers crisis by implementing a 4 trillion yuan fiscal stimulus package. However, it is essential for China to move from the export-oriented growth model to a new growth model in which exports, consumption and investment are better balanced.

This process requires difficult structural reforms of the Chinese economy and, therefore, much time. Fortunately the expansion of Asia's middle-income population offers new growth opportunities for all of Asia. As Chinese Vice Premier Li Keqiang said at the Boao Forum for Asia on April 2, China has no alternative except to grow together with other Asian nations. Japan also is seeking to take advantage of Asia's growth.

A stable financial environment is the precondition for East Asia to grow as a whole. The CMI currency swap arrangement for emergencies does not suffice. East Asia needs more stable exchange rates as well. Although the ASEAN-plus-3 summit agreed in 2005 to speed up research on a mechanism for tightly harmonizing regional exchange rates, little progress has been made. That's because no nation is prepared to have its economic policy sovereignty curtailed through exchange rate coordination.

A proposal by the Japan Business Federation for stabilizing Asian currencies and creating an East Asian economic community reflects the basic economic needs of the region. We have seen how volatile exchange rates can hollow out a nation's industries. Eventually ASEAN-plus-3 will be forced into a financial cooperation aimed at stabilizing exchange rates of regional currencies, and AMRO will naturally become the venue for needed policy discussions.

Several frameworks for economic cooperation exist in East Asia. ASEAN-plus-3 has been concerned from the beginning with financial cooperation. ASEAN-plus-6 was formed by inviting Australia, India and New Zealand at the initiative of Japan. In 2010, ASEAN invited the U.S. and Russia to form ASEAN-plus-8.

The United States is promoting the Transpacific Partnership free trade zone for political and geopolitical motives. The background of each grouping's inception decides its character. ASEAN-plus-3 is the only framework with a decade of financial cooperation; as such, it could evolve to EAC. After all, exchange-rate coordination is its necessary component.

European nations institutionalized the ideal of peace in the European Economic Community, which evolved into the European Community and finally into the European Union.

In East Asia, de facto economic integration as a result of private economic activities came into being first. The prospect of an institutionalized community has not emerged due to different levels of economic development, differing political philosophies and a difficult security environment.

A realistic approach to EAC would be a so-called functional approach as proposed by Japan's Ministry of Foreign Affairs. It calls for first deepening functional cooperation in various areas as preliminary steps in the framework of ASEAN-plus-3.

Cooperation in the financial field can pave the way for eventual formation of an EAC — no matter what it may be called. Then, East Asia will have attained a framework of peace similar to that of the EU.

Mamoru Ishida is advisor to Itochu Corp. He is also visiting professor at China's University of International Business and Economics and at Beijing City University.