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Choice and Coercion in East Asian Exchange Rate Regimes

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  • C. Randall Henning

    ()
    (Peterson Institute for International Economics)

Abstract

This paper examines the exchange rate regimes of East Asian countries since the initial shift by China to a controlled appreciation in July 2005, testing econometrically the weights of key currencies in the implicit baskets that appear to be targeted by East Asian monetary authorities. It finds, first, that four of the larger economies of Southeast Asia have formed a loose but effective "renminbi bloc" with China, with two other countries participating tentatively since the global financial crisis. Second, the emergence of the renminbi bloc in terms of the exchange rate has been facilitated by the continued dominance of the US dollar as a trade, investment and reserve currency. Third, exchange rate stabilization is explained by the economic strategies of these countries, which rely heavily on export development and financial repression, and the economic rise of China. Fourth, analysts should specify the exchange rate preferences of these emerging market countries carefully before drawing inferences about Chinese influence within the region.

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Paper provided by Peterson Institute for International Economics in its series Working Paper Series with number WP12-15.

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Date of creation: Sep 2012
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Handle: RePEc:iie:wpaper:wp12-15

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Keywords: exchange rates; exchange rate regimes; East Asia; Chinese exchange rate policy; renminbi bloc; East Asian regionalism; dollar standard; monetary power;

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References

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  1. Michael P. Dooley & David Folkerts-Landau & Peter Garber, 2003. "An Essay on the Revived Bretton Woods System," NBER Working Papers 9971, National Bureau of Economic Research, Inc.
  2. Frankel, Jeffrey A. & Xie, Daniel, 2010. "Estimation of De Facto Flexibility Parameter and Basket Weights in Evolving Exchange Rate Regimes," Scholarly Articles 4454158, Harvard Kennedy School of Government.
  3. Henning, C. Randall, 1998. "Systemic Conflict and Regional Monetary Integration: The Case of Europe," International Organization, Cambridge University Press, vol. 52(03), pages 537-573, June.
  4. C. Randall Henning & Mohsin S. Khan, 2011. "Asia and Global Financial Governance," Working Paper Series WP11-16, Peterson Institute for International Economics.
  5. Girardin, Eric, 2011. "A De Facto Asian-Currency Unit Bloc in East Asia: It Has Been There but We Did Not Look for It," ADBI Working Papers 262, Asian Development Bank Institute.
  6. McKinnon, Ronald I., 2013. "The Unloved Dollar Standard: From Bretton Woods to the Rise of China," OUP Catalogue, Oxford University Press, number 9780199937004.
  7. Ulrich Volz, 2010. "Prospects for Monetary Cooperation and Integration in East Asia," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262013991, December.
  8. Ronald McKinnon & Gunther Schnabl, 2004. "The Return to Soft Dollar Pegging in East Asia. Mitigating Conflicted Virtue," International Finance 0406007, EconWPA, revised 07 Jul 2004.
  9. 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.
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Cited by:
  1. Arvind Subramanian & Martin Kessler, 2012. "The Renminbi Bloc is Here: Asia Down, Rest of the World to Go?," Working Paper Series WP12-19, Peterson Institute for International Economics, revised 2013.
  2. Volz, Ulrich, 2013. "RMB internationalisation and currency co-operation in East Asia," Working Papers 125, University of Leipzig, Faculty of Economics and Management Science.
  3. Chang Shu & Dong He & Xiaoqiang Cheng, 2014. "One Currency, Two Markets: The Renminbi's Growing Influence in Asia-Pacific," Working Papers 102014, Hong Kong Institute for Monetary Research.

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