Prior to the Asian financial crisis, most Asian exchange rates were de facto pegged to the US Dollar. During the crisis, many economies experienced a brief period of extreme flexibility. A 'fear of floating' gave reduced flexibility when the crisis subsided, but flexibility after the crisis was greater than that seen prior to the crisis. Contrary to the idea of a durable Bretton Woods II arrangement, Asia then went on to slowly raise flexibility and reduce the role for the US dollar. When the period from April 2008 to December 2009 is compared against periods of high inflexibility, from January 1991 to November 1991 and October 1995 to March 1997, the increase in flexibility is economically and statistically significant. This paper proposes a new measure of dollar pegging, the "Bretton Woods II Score". We find that Asia has been slowly moving away from a Bretton Woods II arrangement.© 2010 Elsevier Inc. All rights reserved. JEL classification: F31 F33Keywords: Exchange rate regime Asia Bretton Woods II hypothesis The exchange rate regime in AsiaQuestions connected with the exchange rate regime have been an important part of understanding macroeconomic policies and outcomes in Asia. In the period leading up to the Asian crisis of 1997, many Asian economies had highly inflexible exchange rates. In the aftermath of the Asian crisis, while many economies announced reforms of the exchange rate regime, Calvo and Reinhart (2002) pointed out that there was a substantial difference between the de jure and de facto exchange rate regime, and that many economies had gone back to a high degree of exchange rate inflexibility after the crisis.A substantial research effort tried to understand the sources of this 'fear of floating'. Some hypotheses that have been offered include, the desire to reduce the currency risk faced by corporations with currency mismatches and incomplete financial markets, and the desire to stabilise domestic inflation in a small open economy with substantial exchange rate pass-through. 1 Dooley, Folkerts-Landau, and Garber (2003) have hypothesised the emergence of an Asian-led 'Bretton Woods II' regime motivated by exchange rate mercantilism. Some economists have argued that central bank actions aimed at exchange rate undervaluation should be an integral part of the optimal growth strategy in developing economies (Rodrik, 2008). Other researchers have argued that there is little evidence about a causal impact of exchange rate undervaluation on growth in the long run (Woodford, 2009).The macroeconomic policy framework in some Asian countries has involved a certain interlocking set of features: exchange rate inflexibility, large current account surpluses, and the accumulation of large foreign exchange reserves. This has led to concerns about global imbalances. The resolution of these imbalances may be critically linked to modifying the exchange rate regime in some Asian economies (Lane & Milesi-Ferretti, 2004).In parallel, there has been interest in questions about the role of the US Dollar (USD) in Asi...

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