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Progress toward a Common Currency Basket System in East Asia

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  • OGAWA Eiji
  • SHIMIZU Junko

Abstract

Ogawa and Shimizu (2005, 2006a) have proposed a possible way to create an Asian Monetary Unit (AMU) as a weighted average of the thirteen East Asian currencies (ASEAN + China, Japan, and Korea) and developed AMU Deviation Indicators for a surveillance process under the Chiang Mai Initiative. Both the AMU and the AMU Deviation Indicators are important in helping the countries in the region to recognize the necessity of moving toward a common currency basket system. However, there remains an open question about how to implement this system in East Asian countries. The purpose of this paper is to compile the latest issues of currency basket itself and to develop concrete steps toward a common currency basket system in East Asia. Particularly, we simulate possible individual currency basket weights based on trade shares of each East Asian country and convert them to G3 currency (the US dollar, the euro, and the Japanese yen) basket weights. We also investigate the discrepancies between the converted G3 currency basket weight of the AMU and the weights of the common G3 currency basket, which is to illustrate the reality of implementing a common currency basket system. We propose a possible way to shift from an individual G3 currency basket system to the AMU currency basket system. In this process, we expect that the Japanese yen would play a varying role at each stage toward monetary coordination in East Asia.

Suggested Citation

  • OGAWA Eiji & SHIMIZU Junko, 2007. "Progress toward a Common Currency Basket System in East Asia," Discussion papers 07002, Research Institute of Economy, Trade and Industry (RIETI).
  • Handle: RePEc:eti:dpaper:07002
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    References listed on IDEAS

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    1. Eiji Ogawa & Lijian Sun, 2001. "How Were Capital Inflows Stimulated under the Dollar Peg System?," NBER Chapters, in: Regional and Global Capital Flows: Macroeconomic Causes and Consequences, pages 151-190, National Bureau of Economic Research, Inc.
    2. John Williamson, 2005. "A Currency Basket for East Asia, Not Just China," Policy Briefs PB05-01, Peterson Institute for International Economics.
    3. Etsuro Shioji, 2006. "Chinese Exchange Rate Regimes and the Optimal Basket Weights for the Rest of East Asia," Discussion papers 06024, Research Institute of Economy, Trade and Industry (RIETI).
    4. Ogawa, Eiji & Ito, Takatoshi, 2002. "On the Desirability of a Regional Basket Currency Arrangement," Journal of the Japanese and International Economies, Elsevier, vol. 16(3), pages 317-334, September.
    5. Ito, Takatoshi & Ogawa, Eiji & Sasaki, Yuri Nagataki, 1998. "How Did the Dollar Peg Fail in Asia?," Journal of the Japanese and International Economies, Elsevier, vol. 12(4), pages 256-304, December.
    6. J.S. Eades, 2005. "East Asia," Chapters, in: James G. Carrier (ed.),A Handbook of Economic Anthropology, chapter 34, Edward Elgar Publishing.
    7. Kawai, Masahiro & Takagi, Shinji, 2000. "Proposed strategy for a regional exchange rate arrangement in post-crisis East Asia," Policy Research Working Paper Series 2503, The World Bank.
    8. Takatoshi Ito & Anne O. Krueger, 1994. "Macroeconomic Linkage: Savings, Exchange Rates, and Capital Flows," NBER Books, National Bureau of Economic Research, Inc, number ito_94-1, Juni.
    9. Jeffrey A. Frankel & Shang-Jin Wei, 1994. "Yen Bloc or Dollar Bloc? Exchange Rate Policies of the East Asian Economies," NBER Chapters, in: Macroeconomic Linkage: Savings, Exchange Rates, and Capital Flows, pages 295-333, National Bureau of Economic Research, Inc.
    10. Takatoshi Ito & Anne O. Krueger, 2001. "Regional and Global Capital Flows: Macroeconomic Causes and Consequences," NBER Books, National Bureau of Economic Research, Inc, number ito_01-1, Juni.
    11. Ramikishen Rajan, 2002. "Exchange Rate Policy Options for Post‐crisis Southeast Asia: Is There a Case for Currency Baskets?," The World Economy, Wiley Blackwell, vol. 25(1), pages 137-163, January.
    12. Eiji Ogawa & Junko Shimizu, 2006. "AMU Deviation Indicator for Coordinated Exchange Rate Policies in East Asia and its Relation with Effective Exchange Rates," Discussion papers 06002, Research Institute of Economy, Trade and Industry (RIETI).
    13. Eiji Ogawa & Michiru Sakane, 2006. "The Chinese Yuan after the Chinese Exchange Rate System Reform," Discussion papers 06019, Research Institute of Economy, Trade and Industry (RIETI).
    14. Eiji Ogawa & Junko Shimizu, 2006. "AMU Deviation Indicator for Coordinated Exchange Rate Policies in East Asia and its Relation with Effective Exchange Rates," Hi-Stat Discussion Paper Series d05-131, Institute of Economic Research, Hitotsubashi University.
    15. Eiji Ogawa & Michiru Sakane, 2006. "Chinese Yuan after Chinese Exchange Rate System Reform," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 14(6), pages 39-57, November.
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    Cited by:

    1. Taizo Motonishi, 2009. "Are the East Asian Currencies still Misaligned? An Analysis Based on Absolute PPP-Income Relationship using Panel Data," Macroeconomics Working Papers 22882, East Asian Bureau of Economic Research.
    2. Nam-Kook Kim, 2009. "European experience for East Asian integration: ideas, national interests, and the international circumstance," Asia Europe Journal, Springer, vol. 7(2), pages 295-312, June.
    3. Catherine Figuière & Laëtitia Guilhot, 2011. "Évolution du rôle du yuan en Asie orientale : la guerre des monnaies aura-t-elle lieu ?," Post-Print halshs-00697581, HAL.

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