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Asian Reserves and the Dollar: Is Gradual Adjustment Possible?

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  • Ashima Goyal

Abstract

Large dollar reserves in Asian EMEs accompany large U.S. fiscal and current account deficits. Analysis of strategic sales by Asian EMEs suggests that an attack on the dollar is not certain but is possible. A unique equilibrium where Asian EMEs sell their reserves does not exist but there are multiple Nash equilibria. Therefore action, which includes adjustment, is required to coordinate to the better equilibrium. There is evidence that more flexibility in Asian exchange rates will reduce risk for Asian EMEs, but the flexibility will have to be limited, and it depends on more flexibility in the renminbi. Moreover, limits to adjustment in wages put limits on realignments between US and Asian exchange rates. Therefore while a gradual adjustment strategy is feasible it will require both expenditure switching and expenditure reduction with the latter moderated by the maintenance of robust global growth. [Abstract Only] http://www.bepress.com/gej/vol5/iss3/3

Suggested Citation

  • Ashima Goyal, 2005. "Asian Reserves and the Dollar: Is Gradual Adjustment Possible?," Working Papers id:252, eSocialSciences.
    • Handle: RePEc:ess:wpaper:id:252
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    Cited by:

    1. Ashima Goyal & Ankita Agarwal, 2005. "Risk and Asian Exchange Rate Regimes," Global Economic Review, Taylor & Francis Journals, vol. 34(3), pages 321-329.
    2. Ashima Goyal, 2010. "Global Financial Architecture," Margin: The Journal of Applied Economic Research, National Council of Applied Economic Research, vol. 4(2), pages 225-239, May.
    3. Ashima Goyal, 2013. "Assessing Changes in the Global Financial Architecture from an Emerging Market Perspective," Foreign Trade Review, , vol. 48(4), pages 461-480, November.

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    JEL classification:

    • F0 - International Economics - - General
    • F3 - International Economics - - International Finance

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