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Exchange Rate Coordination in Asia : Evidence using the Asian Currency Unit

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  • Abhijit Sen Gupta

    (Asian Development Bank Institute (ADBI))

Abstract

This paper evaluates the extent of exchange rate coordination among Asian economies using a hypothetical Asian Currency Unit. Rising interdependence among Asian economies makes it vital for these economies to have a certain degree of exchange rate stability. However, the empirical evidence using an Asian Currency Unit suggests a widening deviation in exchange rate movements of the Asian currencies. The deviation has been driven by the adoption of different exchange rate regimes by the participating countries indicating diverse policy objectives. There are a number of institutions in the region that can assist exchange rate coordination and greater economic and financial integration. These institutions, including a multilateralized swap arrangement, a regional surveillance mechanism, and a bond fund; have to be significantly strengthened for them to play a role in fostering greater economic cooperation. The denomination of financial assets in the Asian Currency Unit in transactions involving these institutions would also enhance exchange rate cooperation.

Suggested Citation

  • Abhijit Sen Gupta, 2012. "Exchange Rate Coordination in Asia : Evidence using the Asian Currency Unit," Governance Working Papers 23321, East Asian Bureau of Economic Research.
  • Handle: RePEc:eab:govern:23321
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    References listed on IDEAS

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    1. Carmen M. Reinhart & Kenneth S. Rogoff, 2004. "The Modern History of Exchange Rate Arrangements: A Reinterpretation," The Quarterly Journal of Economics, Oxford University Press, vol. 119(1), pages 1-48.
    2. Masahiro Kawai & Shinji Takagi, 2005. "Towards regional monetary cooperation in East Asia: lessons from other parts of the world," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 10(2), pages 97-116.
    3. Haruhiko Kuroda & Masahiro Kawai, 2002. "Strengthening Regional Financial Cooperation in East Asia," Asia Pacific Economic Papers 332, Australia-Japan Research Centre, Crawford School of Public Policy, The Australian National University.
    4. Im, Kyung So & Pesaran, M. Hashem & Shin, Yongcheol, 2003. "Testing for unit roots in heterogeneous panels," Journal of Econometrics, Elsevier, pages 53-74.
    5. Levy-Yeyati, Eduardo & Sturzenegger, Federico, 2005. "Classifying exchange rate regimes: Deeds vs. words," European Economic Review, Elsevier, vol. 49(6), pages 1603-1635, August.
    6. Kenen,Peter B. & Meade,Ellen E., 2008. "Regional Monetary Integration," Cambridge Books, Cambridge University Press, number 9780521711500, December.
    7. OGAWA Eiji & YOSHIMI Taiyo, 2008. "Widening Deviation among East Asian Currencies," Discussion papers 08010, Research Institute of Economy, Trade and Industry (RIETI).
    8. Levin, Andrew & Lin, Chien-Fu & James Chu, Chia-Shang, 2002. "Unit root tests in panel data: asymptotic and finite-sample properties," Journal of Econometrics, Elsevier, pages 1-24.
    9. Barry Eichengreen, 2006. "The Parallel-Currency Approach to Asian Monetary Integration," American Economic Review, American Economic Association, pages 432-436.
    10. C. Simon Fan & Xiangdong Wei, 2006. "The Law of One Price: Evidence from the Transitional Economy of China," The Review of Economics and Statistics, MIT Press, pages 682-697.
    11. Im, Kyung So & Pesaran, M. Hashem & Shin, Yongcheol, 2003. "Testing for unit roots in heterogeneous panels," Journal of Econometrics, Elsevier, pages 53-74.
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    Cited by:

    1. Dumrongrittikul, Taya & Anderson, Heather M., 2016. "How do shocks to domestic factors affect real exchange rates of Asian developing countries?," Journal of Development Economics, Elsevier, pages 67-85.
    2. Dumrongrittikul, Taya & Anderson, Heather M., 2016. "How do shocks to domestic factors affect real exchange rates of Asian developing countries?," Journal of Development Economics, Elsevier, pages 67-85.
    3. Pontines, Victor, 2015. "How useful is an Asian Currency Unit (ACU) index for surveillance in East Asia?," Economic Systems, Elsevier, vol. 39(2), pages 269-287.

    More about this item

    Keywords

    Exchange rate coordination; Asia; Asian Currency Unit; exchange rate stability; financial cooperation;

    JEL classification:

    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • F55 - International Economics - - International Relations, National Security, and International Political Economy - - - International Institutional Arrangements
    • F15 - International Economics - - Trade - - - Economic Integration

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