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Which country should be the monetary anchor for East Asia: the US, Japan or China?

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  • Chee-Heong Quah
  • Patrick Crowley

Abstract

In this paper, we apply the optimum currency area (OCA) criteria to assess the suitability of whether the US, Japan or China would best serve as the monetary anchor country for East Asian countries. The OCA criteria used are trade openness, business cycle synchronisation, real exchange rate volatility, inflation convergence and real interest rate cycle synchronisation. The ‘performance’ of these potential anchor countries is compared before and after the Asian financial crisis. The findings suggest an increase in the potential for China as a monetary anchor in the future but the US dollar likely still is the most obvious choice of anchor currency. From an endogenous OCA perspective, the findings also broadly support the existing currency boards in Hong Kong and Macau and the monetary union between Singapore and Brunei.

Suggested Citation

  • Chee-Heong Quah & Patrick Crowley, 2012. "Which country should be the monetary anchor for East Asia: the US, Japan or China?," Journal of the Asia Pacific Economy, Taylor & Francis Journals, vol. 17(1), pages 94-112.
  • Handle: RePEc:taf:rjapxx:v:17:y:2012:i:1:p:94-112
    DOI: 10.1080/13547860.2012.640004
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    File URL: http://hdl.handle.net/10.1080/13547860.2012.640004
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    References listed on IDEAS

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    1. N/A, 2003. "The World Economy," National Institute Economic Review, National Institute of Economic and Social Research, vol. 184(1), pages 9-35, April.
    2. N/A, 2003. "The World Economy," National Institute Economic Review, National Institute of Economic and Social Research, vol. 185(1), pages 9-16, July.
    3. Toan Nguyen, 2007. "East Asian Currency Area: A Fuzzy Clustering Analysis of Homogeneity," Working Papers 10, Development and Policies Research Center (DEPOCEN), Vietnam.
    4. N/A, 2003. "The World Economy," National Institute Economic Review, National Institute of Economic and Social Research, vol. 183(1), pages 8-33, January.
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    Cited by:

    1. Mengdi Song, 2018. "Network Effects of Countries’ Exchange Rate Regime Choices: A Spatial Analysis," Open Economies Review, Springer, vol. 29(5), pages 1061-1093, November.
    2. Quah Chee-Heong, 2019. "China’s Dollar-linked Hong Kong during the Global Crisis," Revista Apuntes del Cenes, Universidad Pedagógica y Tecnológica de Colombia, vol. 38(67), pages 95-121, February.
    3. Ibrahim Bakari Hassan & M. Azali & Lee Chin & Wan N.W. Azman-Saini, 2017. "Macroeconomic linkages and international shock transmissions in East Asia: A global vector autoregressive approach," Cogent Economics & Finance, Taylor & Francis Journals, vol. 5(1), pages 1370772-137, January.

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