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Strategy for a Regional Exchange Rate Arrangement in East Asia: Analysis, Review and Proposal

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  • Masahiro Kawai
  • Shinji Takagi
Abstract
This paper discusses major conceptual and empirical issues relevant to the exchange rate policies of East Asian economies. Given the high degree of economic integration, intra-regional exchange rate stability remains an important objective in East Asia. But the current uncoordinated practice of each economy managing exchange rates or maintaining a de facto dollar peg is not optimal for this purpose. The paper suggests that the region's governments take a coordinated action to shift the policy of nominal exchange rate policy from the US dollar alone to a common basket of the US dollar, the Japanese yen, and the Euro, which would be more reflective of the average structure of foreign trade and direct investment. At least initially, each economy is free to choose its own formal exchange rate arrangement, be it a fixed exchange rate regime, a crawling peg or a managed float with wide margins, as long as it chooses the common basket as the reference. Such an arrangement is a pragmatic policy option for East Asia until greater political and institutional developments create an environment conducive to a more robust framework of monetary and exchange rate policy coordination.

Suggested Citation

  • Masahiro Kawai & Shinji Takagi, 2005. "Strategy for a Regional Exchange Rate Arrangement in East Asia: Analysis, Review and Proposal," Global Economic Review, Taylor & Francis Journals, vol. 34(1), pages 21-64.
    • Handle: RePEc:taf:glecrv:v:34:y:2005:i:1:p:21-64
    DOI: 10.1080/1226508042000328962
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    References listed on IDEAS

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    1. Mr. Jonathan David Ostry & Ms. Anne Marie Gulde & Mr. Atish R. Ghosh & Holger C. Wolf, 1995. "Does the Nominal Exchange Rate Regime Matter?," IMF Working Papers 1995/121, International Monetary Fund.
    2. Agnès Bénassy-Quéré & Lionel Fontagné & Amina Lahrèche-Revil, 1999. "Exchange Rate Strategies in the Competition for Attracting FDI," Working Papers 1999-16, CEPII research center.
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    5. repec:dau:papers:123456789/12492 is not listed on IDEAS
    6. Ronald I. McKinnon & Kenichi Ohno, 1997. "Dollar and Yen: Resolving Economic Conflict between the United States and Japan," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262133350, April.
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    Cited by:

    1. Masahiro Kawai, 2014. "Asian Monetary Integration : A Japanese Perspective," Governance Working Papers 24158, East Asian Bureau of Economic Research.
    2. C. Randall Henning, 2012. "Choice and Coercion in East Asian Exchange Rate Regimes," Working Paper Series WP12-15, Peterson Institute for International Economics.
    3. Quah, Chee-Heong & Ho, Yew-Joe, 2020. "Economic Feasibility of Malaysia and Singapore-Brunei Monetary Reunion: A Scrutiny during Major Financial Crises," Asian Journal of Applied Economics, Kasetsart University, Center for Applied Economics Research, vol. 27(1).
    4. Masahiro Kawai, 2010. "Reform Of The International Financial Architecture: An Asian Perspective," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 55(01), pages 207-242.
    5. Masahiro Kawai & Shinji Takagi, 2005. "Towards regional monetary cooperation in East Asia: lessons from other parts of the world," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 10(2), pages 97-116.
    6. Peter B. Kenen & Ellen E. Meade, 2006. "Monetary integration in East Asia," Proceedings, Federal Reserve Bank of San Francisco, issue Jun.
    7. Girardin Eric, 2009. "Regional Monetary Units for East Asia: Lessons from Europe," Working Papers id:1972, eSocialSciences.
    8. Chee‐Heong Quah & Patrick M. Crowley, 2010. "Monetary Integration in East Asia: A Hierarchical Clustering Approach," International Finance, Wiley Blackwell, vol. 13(2), pages 283-309, August.
    9. Baharumshah, Ahmad Zubaidi & Onwuka, Kevin Odulukwe & Habibullah, Muzafar Shah, 2007. "Is a regional trade bloc a prelude to multilateral trade liberalization?: Empirical evidence from the ASEAN-5 economies," Journal of Asian Economics, Elsevier, vol. 18(2), pages 384-402, April.

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