151. Strategy for a Regional Exchange Rate Arrangement in East Asia: Analysis, Review and Proposal.
- Author
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Kawai, Masahiro and Takagi, Shinji
- Subjects
ECONOMIC conditions in East Asia ,FOREIGN exchange rates ,MONETARY policy ,ECONOMIC policy ,INTERNATIONAL trade - Abstract
This paper discusses major conceptual and empirical issues relevant to the exchange rate policies of East Asian ecnomies. Given the high degree of economic integration, intraregional exchange rate stability remains an important objective in East Asia. But the current uncoordinated practice of each economy managing exchange rates or maintainging 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 anchor 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 gree 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 development create an environment condcive to a more robust framework of monetary and exchange rate policy coordination. [ABSTRACT FROM AUTHOR]
- Published
- 2005
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