Toward a Regional Exchange Rate Regime in East Asia

Abstract

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“…However, the yen quickly peaked following stagnation of the Japanese economy. In the aftermath of the Asian financial crisis, there was an important proposal for creating an Asian currency (Kawai 2008). This proposal, however, lost momentum as its role model, the eurozone, fell into a debt crisis.…”

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“…Following Franken and Wei (1992), both Ogawa and Shimitzu (2005) and Kawai (2007) regressed special-drawing-right (SDR) exchange rate returns of the domestic currency on the returns of the US dollar, yen, and euro visa-vis the SDR, and showed the resilience of the US dollar peg in the East Asian countries up to the mid-2000s. A similar conclusion was reached by Hernandez and Montiel (2003) by employing the relative volatilities of exchange market pressure indices.…”

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“…McKinnon and Schnabl (2004) coined the phrase, "the resurrection of an East Asian dollar-standard," a finding that was corroborated by Benassy-Quere and Coeure (2006). Somewhat different evidence was provided, however, by Kawai (2008) who found that, with the exception of a few US dollar peg economies in the East Asian region such as the PRC and Hong Kong, China, most East Asian currencies began to exhibit greater exchange rate flexibility a few years after the Asian financial crisis, and some currencies adopted currency basket systems in which the yen played an important part.…”