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What Should the Weights of the Three Major Currencies be in a Common Currency Basket in East Asia?

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  • Kentaro Kawasaki
  • Eiji Ogawa

Abstract

We consider what type of regional common currency should be introduced in East Asia in the future. The common currency basket is, in itself, more desirable as an anchor currency. In this paper we define two types of currency basket and investigate the long-term sustainability of adopting a common currency basket in East Asia. From our empirical results, a larger weight (but less than 100 percent) for the US dollar in the common currency basket tends to make bilateral exchange rates among East Asian countries stable in the long run. Copyright 2006 East Asian Economic Association.

Suggested Citation

  • Kentaro Kawasaki & Eiji Ogawa, 2006. "What Should the Weights of the Three Major Currencies be in a Common Currency Basket in East Asia? ," Asian Economic Journal, East Asian Economic Association, vol. 20(1), pages 75-94, March.
  • Handle: RePEc:bla:asiaec:v:20:y:2006:i:1:p:75-94
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    Citations

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    Cited by:

    1. Eiji Ogawa & Kentaro Kawasaki, 2008. "Adopting a Common Currency Basket Arrangement into the ASEAN Plus Three," NBER Chapters,in: International Financial Issues in the Pacific Rim: Global Imbalances, Financial Liberalization, and Exchange Rate Policy (NBER-EASE Volume 17), pages 219-237 National Bureau of Economic Research, Inc.
    2. Sergio Da Silva & Leandro Stocco & J. Anchieta Neves, 2008. "Is Mercosur an optimum currency area? An assessment using generalized purchasing power parity," Economics Bulletin, AccessEcon, vol. 6(29), pages 1-13.
    3. Dimitrios Sideris, 2009. "Do the new EU member states form an Optimum Currency Area with the eurozone? Evidence from six Central and Eastern European Countries," SEEMHN papers 15, National Bank of Serbia.
    4. Sato, Kiyotaka & Zhang, Zhaoyong & Allen, David, 2009. "The suitability of a monetary union in East Asia: What does the cointegration approach tell?," Mathematics and Computers in Simulation (MATCOM), Elsevier, vol. 79(9), pages 2927-2937.
    5. repec:ebl:ecbull:v:6:y:2008:i:29:p:1-13 is not listed on IDEAS
    6. Neves, J. Anchieta & Stocco, Leandro & Da Silva, Sergio, 2007. "Is Mercosur an optimum currency area?," MPRA Paper 2758, University Library of Munich, Germany.
    7. Chow, Hwee Kwan & Kim, Yoonbai & Sun, Wei, 2007. "Characterizing exchange rate policy in East Asia: A reconsideration," Journal of Asian Economics, Elsevier, vol. 18(3), pages 448-465, June.
    8. Ogawa, Eiji & Shimizu, Junko, 2006. "Stabilization of effective exchange rates under common currency basket systems," Journal of the Japanese and International Economies, Elsevier, vol. 20(4), pages 590-611, December.
    9. Eiji Ogawa & Junko Shimizu, 2006. "Stabilization of Effective Exchange Rates Under Common Currency Basket Systems," NBER Working Papers 12198, National Bureau of Economic Research, Inc.

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