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Regional Currency Unit in Asia : Property and Perspective

Author

Listed:
  • Woosik Moon

    (KIEP)

  • Yeongseop Rhee
  • Deokryong Yoon

Abstract

This paper examines different properties of the regional currency unit (RCU) in Asia and estimates the value of the RCU as a weighted average of East Asian currencies according to the method used to calculate the ECU under the EMS. The basket feature of the RCU yields benefits and costs. First, the use of the RCU central rate can make the intervention burden of a central bank less onerous than the use of a bilateral exchange rate. Also, for any given band of margins, a basket unit offers more flexibility than a bilateral exchange rate. Another advantage of using the RCU is that the variance of RCU exchange rates is smaller than the variance of exchange rates of component countries. However, the usefulness of the RCU as a unit of account for domestic transactions and contracts will be very limited because of information costs and uncertainty about the value of the RCU. Also, theintroduction of the RCU raises the important problem of asymmetry for foreign exchange market intervention. Once such a problem is solved, the RCU can be then used as a divergence indicator to monitor the exchange rates of Asian currencies between themselves and against the US dollar or the euro. The creation of the RCU is a good way to coordinate policies and assure exchange stability between Asian countries.

Suggested Citation

  • Woosik Moon & Yeongseop Rhee & Deokryong Yoon, 2006. "Regional Currency Unit in Asia : Property and Perspective," Macroeconomics Working Papers 21972, East Asian Bureau of Economic Research.
    • Handle: RePEc:eab:macroe:21972
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    References listed on IDEAS

    as
    1. Eiji Ogawa & Junko Shimizu, 2005. "A Deviation Measurement for Coordinated Exchange Rate Policies in East Asia," Discussion papers 05017, Research Institute of Economy, Trade and Industry (RIETI).
    2. Gongpil Choi & Deok Ryong Yoon, 2005. "A Roadmap for the Asian Exchange Rate Mechanism," Macroeconomics Working Papers 21960, East Asian Bureau of Economic Research.
    3. Michael D. Bordo & Anna J. Schwartz & Paul Grauwe, 1989. "The ECU — An Imaginary or Embryonic Form of Money: What Can We Learn from History?," Palgrave Macmillan Books, in: Paul Grauwe & Theo Peeters (ed.), The ECU and European Monetary Integration, chapter 1, pages 1-24, Palgrave Macmillan.
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Catherine Figuière & Laëtitia Guilhot & Cyriac Guillaumin, 2013. "La question du régime de change en Asie de l'Est : Vers un bloc monétaire régional ?," Revue d'économie politique, Dalloz, vol. 123(2), pages 265-298.
    2. Jeon, Bang Nam & Zhang, Hongfang, 2007. "A currency union or an exchange rate union: evidence from Northeast Asia," MPRA Paper 36622, University Library of Munich, Germany, revised 01 Feb 2012.
    3. Click, Reid W., 2009. "The ASEAN dollar standard in the post-crisis era: A reconsideration," Journal of Asian Economics, Elsevier, vol. 20(3), pages 269-279, May.

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    More about this item

    Keywords

    Regional Currency Unit; ECU; parallel currency; Asian monetary integration;
    All these keywords.

    JEL classification:

    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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