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A De Facto Asian-Currency Unit Bloc in East Asia : It Has Been There but We Did Not Look for It

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  • Eric Girardin

    (Asian Development Bank Institute (ADBI))

Abstract
Pegging in a coordinated way to a regional basket currency is considered by many as optimal for east-Asian countries. By contrast, according to existing empirical studies, these countries have most often relied on noncooperative United States dollar or G3 pegs. We show for the first time that by the late 1990s, with some reversals, a majority of east-Asian countries had already moved, de facto, away from the dollar peg and started targeting a basket, including east-Asian currencies (an “Asian Currency Unit†). Common-shock or market-based interpretations of such moves are ruled out since we document that, with few exceptions, countries in the region have in reality stuck to fixed exchange rates. We obtain such results using a Markov-switching estimation benchmarked against Bai-Perron structural break tests for the synthesis model of Frankel and Wei (2007), which augments the inference about currency weights in a basket with the weight on exchange-market pressure. In order to measure the latter, the forward positions of central banks in the foreign exchange market are taken into account.

Suggested Citation

  • Eric Girardin, 2011. "A De Facto Asian-Currency Unit Bloc in East Asia : It Has Been There but We Did Not Look for It," Finance Working Papers 23275, East Asian Bureau of Economic Research.
    • Handle: RePEc:eab:financ:23275
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    References listed on IDEAS

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    1. Guillermo A. Calvo & Carmen M. Reinhart, 2002. "Fear of Floating," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 117(2), pages 379-408.
    2. Dooley, Michael P, 2000. "A Model of Crises in Emerging Markets," Economic Journal, Royal Economic Society, vol. 110(460), pages 256-272, January.
    3. Eduardo Levy-Yeyati & Federico Sturzenegger, 2003. "To Float or to Fix: Evidence on the Impact of Exchange Rate Regimes on Growth," American Economic Review, American Economic Association, vol. 93(4), pages 1173-1193, September.
    4. Cheung, Yin-Wong & Erlandsson, Ulf G., 2005. "Exchange Rates and Markov Switching Dynamics," Journal of Business & Economic Statistics, American Statistical Association, vol. 23, pages 314-320, July.
    5. Masahiro Kawai, 2008. "Toward A Regional Exchange Rate Regime In East Asia," Pacific Economic Review, Wiley Blackwell, vol. 13(1), pages 83-103, February.
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    Cited by:

    1. Mr. Vladimir Klyuev & To-Nhu Dao, 2016. "Evolution of Exchange Rate Behavior in the ASEAN-5 Countries," IMF Working Papers 2016/165, International Monetary Fund.
    2. Subramanian Arvind & Kessler Martin, 2013. "The Renminbi Bloc is Here: Asia Down, Rest of the World to Go?1)," Journal of Globalization and Development, De Gruyter, vol. 4(1), pages 49-94, August.
    3. Guimbard, Houssein & Le Goff, Maëlan, 2014. "Mega Deals: What Consequences for sub-Saharan Africa?," Conference papers 332514, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    4. Benjamin KEDDAD & SATO Kiyotaka, 2019. "Pegging or Floating? A Regime-Switching Perspective of Asian Exchange Rate Practices," Discussion papers 19073, Research Institute of Economy, Trade and Industry (RIETI).
    5. Pontines, Victor, 2015. "How useful is an Asian Currency Unit (ACU) index for surveillance in East Asia?," Economic Systems, Elsevier, vol. 39(2), pages 269-287.
    6. Balasubramaniam, Vimal & Patnaik, Ila & Shah, Ajay, 2011. "Who cares about the Chinese Yuan?," Working Papers 11/89, National Institute of Public Finance and Policy.
    7. Keddad, Benjamin & Sato, Kiyotaka, 2022. "The influence of the renminbi and its macroeconomic determinants: A new Chinese monetary order in Asia?," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 79(C).
    8. Caporale, Guglielmo Maria & Gil-Alana, Luis A. & You, Kefei, 2018. "Exchange rate linkages between the ASEAN currencies, the US dollar and the Chinese RMB," Research in International Business and Finance, Elsevier, vol. 44(C), pages 227-238.
    9. Hwee Kwan Chow, 2014. "Is the Renminbi Asia's Dominant Reference Currency? A Reconsideration," China Economic Policy Review (CEPR), World Scientific Publishing Co. Pte. Ltd., vol. 3(01), pages 1-20.
    10. C. Randall Henning, 2012. "Choice and Coercion in East Asian Exchange Rate Regimes," Working Paper Series WP12-15, Peterson Institute for International Economics.
    11. Caporale, Guglielmo Maria & Gil-Alana, Luis A. & You, Kefei, 2018. "Exchange rate linkages between the ASEAN currencies, the US dollar and the Chinese RMB," Research in International Business and Finance, Elsevier, vol. 44(C), pages 227-238.
    12. Catherine Figuière & Laëtitia Guilhot, 2011. "Évolution du rôle du yuan en Asie orientale : la guerre des monnaies aura-t-elle lieu ?," Post-Print halshs-00697581, HAL.
    13. repec:zbw:bofrdp:2016_020 is not listed on IDEAS

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    More about this item

    Keywords

    Asian-Currency Unit Bloc; East Asia; regional basket currency; Markov-switching estimation; foreign exchange market;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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