Choosing an anchor currency for the Pacific
AbstractThis paper analyses currency options for six Pacific states - Fiji, Papua New Guinea, Samoa, Solomon Islands, Tonga and Vanuatu - that issue their own currencies. Empirical estimates indicate that these states already stabilize their currencies against the US dollar because of their large and increasing trade with emerging Asia which denominates its trade in US dollars. Building on the theory of an optimal peg, we argue that the replacement of present currencies by the US dollar would strengthen these countries´ trade. Gravity model estimations indicate that adopting a common external currency would be a major stimulus to Pacific trade. While the Australian dollar has been suggested because of the Pacific´s traditional trade relations with Australia this choice would be the result of a reverse causality bias. A binary choice method is applied to trace endogeneity biases in the Pacific sample. The gains for trade from the adoption of an external currency are lower but remain positive. --
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by University of Goettingen, Department of Economics in its series Center for European, Governance and Economic Development Research Discussion Papers with number 112.
Date of creation: 2010
Date of revision:
Currency regimes; gravity model; binary choice; Pacific;
Find related papers by JEL classification:
- C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
- F15 - International Economics - - Trade - - - Economic Integration
- F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Ronald McKinnon & Gunther Schnabl, 2003.
"The East Asian Dollar Standard, Fear of Floating, and Original Sin,"
03001, Stanford University, Department of Economics.
- Ronald McKinnon & Gunther Schnabl, 2004. "The East Asian Dollar Standard, Fear of Floating, and Original Sin," Review of Development Economics, Wiley Blackwell, vol. 8(3), pages 331-360, 08.
- Ronald McKinnon & Gunther Schnabl, 2003. "The East Asian Dollar Standard, Fear of Floating, and Original Sin," Working Papers 112003, Hong Kong Institute for Monetary Research.
- Gunther Schnabl & Stephan Freitag, 2009. "Policy Implications of Global Asymmetric Current Account Positions," Review of Economics, Helmut Schmidt Universitaet Hamburg, vol. 60(2), pages 103-137.
- David William Harold Orsmond & Christopher Browne, 2006. "Pacific Island Countries--Possible Common Currency Arrangement," IMF Working Papers 06/234, International Monetary Fund.
- McKinnon, Ronald I., 1979. "Money in International Exchange: The Convertible Currency System," OUP Catalogue, Oxford University Press, number 9780195024098.
- Ritschl, Albrecht & Wolf, Nikolaus, 2003.
"Endogeneity of Currency Areas and Trade Blocs: Evidence from the Inter-war Period,"
CEPR Discussion Papers
4112, C.E.P.R. Discussion Papers.
- Wolf, Nikolaus & Ritschl, Albrecht, 2003. "Endogeneity of Currency Areas and Trade Blocs: Evidence from the Inter-War Period," Papers 2004,10, Humboldt-Universität Berlin, Center for Applied Statistics and Economics (CASE).
- Torsten Persson, 2001. "Currency unions and trade: how large is the treatment effect?," Economic Policy, CEPR & CES & MSH, vol. 16(33), pages 433-462, October.
- Emerson, Michael & Gros, Daniel & Italianer, Alexander & ,, 1992. "One Market, One Money: An Evaluation of the Potential Benefits and Costs of Forming an Economic and Monetary Union," OUP Catalogue, Oxford University Press, number 9780198773245.
- Dr Peter Kenen, 2002. "Currency Unions and Trade: Variations on Themes by Rose and Persson," Reserve Bank of New Zealand Discussion Paper Series DP2002/08, Reserve Bank of New Zealand.
- Christie Smith, 2002. "Currency unions and gravity models revisited," Reserve Bank of New Zealand Discussion Paper Series DP2002/07, Reserve Bank of New Zealand.
- Alejandro Micco & Ernesto Stein & Guillermo OrdoÒez, 2003.
"The currency union effect on trade: early evidence from EMU,"
CEPR & CES & MSH, vol. 18(37), pages 315-356, October.
- Alejandro Micco & Ernesto H. Stein & Guillermo Luis Ordoñez, 2003. "The Currency Union Effect on Trade: Early Evidence from EMU," Research Department Publications 4339, Inter-American Development Bank, Research Department.
- repec:lus:journl:v:60:y:2009:i:2:p:103-137 is not listed on IDEAS
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (ZBW - German National Library of Economics).
If references are entirely missing, you can add them using this form.