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Choice and Coercion in East Asian Exchange Rate Regimes

Author

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  • C. Randall Henning

    () (Peterson Institute for International Economics)

Abstract

This paper examines the exchange rate regimes of East Asian countries since the initial shift by China to a controlled appreciation in July 2005, testing econometrically the weights of key currencies in the implicit baskets that appear to be targeted by East Asian monetary authorities. It finds, first, that four of the larger economies of Southeast Asia have formed a loose but effective "renminbi bloc" with China, with two other countries participating tentatively since the global financial crisis. Second, the emergence of the renminbi bloc in terms of the exchange rate has been facilitated by the continued dominance of the US dollar as a trade, investment and reserve currency. Third, exchange rate stabilization is explained by the economic strategies of these countries, which rely heavily on export development and financial repression, and the economic rise of China. Fourth, analysts should specify the exchange rate preferences of these emerging market countries carefully before drawing inferences about Chinese influence within the region.

Suggested Citation

  • C. Randall Henning, 2012. "Choice and Coercion in East Asian Exchange Rate Regimes," Working Paper Series WP12-15, Peterson Institute for International Economics.
  • Handle: RePEc:iie:wpaper:wp12-15
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    References listed on IDEAS

    as
    1. Jeffrey Frankel & Daniel Xie, 2010. "Estimation of De Facto Flexibility Parameter and Basket Weights in Evolving Exchange Rate Regimes," American Economic Review, American Economic Association, vol. 100(2), pages 568-572, May.
    2. Leong H. Liew & Harry X. Wu, 2007. "The Making of China’s Exchange Rate Policy," Books, Edward Elgar Publishing, number 2739, April.
    3. Girardin, Eric, 2011. "A De Facto Asian-Currency Unit Bloc in East Asia: It Has Been There but We Did Not Look for It," ADBI Working Papers 262, Asian Development Bank Institute.
    4. Ulrich Volz, 2009. "Three Cases for Monetary Integration in East Asia," Chapters,in: Towards Monetary and Financial Integration in East Asia, chapter 8 Edward Elgar Publishing.
    5. Michael P. Dooley & David Folkerts-Landau & Peter M. Garber, 2005. "An essay on the revived Bretton Woods system," Proceedings, Federal Reserve Bank of San Francisco.
    6. C. Randall Henning & Mohsin S. Khan, 2011. "Asia and Global Financial Governance," Working Paper Series WP11-16, Peterson Institute for International Economics.
    7. Ronald McKinnon & Gunther Schnabl, 2009. "Current Account Surpluses and Conflicted Virtue in East Asia: China and Japan under the Dollar Standard," Chapters,in: Towards Monetary and Financial Integration in East Asia, chapter 7 Edward Elgar Publishing.
    8. Masahiro Kawai & Shinji Takagi, 2005. "Strategy for a Regional Exchange Rate Arrangement in East Asia: Analysis, Review and Proposal," Global Economic Review, Taylor & Francis Journals, vol. 34(1), pages 21-64.
    9. Henning, C. Randall, 1998. "Systemic Conflict and Regional Monetary Integration: The Case of Europe," International Organization, Cambridge University Press, vol. 52(03), pages 537-573, June.
    10. Ronald McKinnon & Gunther Schnabl, 2004. "The Return to Soft Dollar Pegging in East Asia: Mitigating Conflicted Virtue," International Finance, Wiley Blackwell, vol. 7(2), pages 169-201, July.
    11. Kenen,Peter B. & Meade,Ellen E., 2008. "Regional Monetary Integration," Cambridge Books, Cambridge University Press, number 9780521711500, March.
    12. McKinnon, Ronald I., 2013. "The Unloved Dollar Standard: From Bretton Woods to the Rise of China," OUP Catalogue, Oxford University Press, number 9780199937004.
    13. Ulrich Volz, 2010. "Prospects for Monetary Cooperation and Integration in East Asia," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262013991, January.
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    Citations

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    Cited by:

    1. Gunther Schnabl & Kristina Spantig, 2016. "(De)Stabilizing Exchange Rate Strategies In East Asian Monetary And Economic Integration," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 61(02), pages 1-24, June.
    2. Shu, Chang & He, Dong & Cheng, Xiaoqiang, 2015. "One currency, two markets: the renminbi's growing influence in Asia-Pacific," China Economic Review, Elsevier, vol. 33(C), pages 163-178.
    3. Funke, Michael & Shu, Chang & Cheng, Xiaoqiang & Eraslan, Sercan, 2015. "Assessing the CNH–CNY pricing differential: Role of fundamentals, contagion and policy," Journal of International Money and Finance, Elsevier, vol. 59(C), pages 245-262.
    4. Subramanian Arvind & Kessler Martin, 2013. "The Renminbi Bloc is Here: Asia Down, Rest of the World to Go?," Journal of Globalization and Development, De Gruyter, vol. 4(1), pages 49-94, August.
    5. repec:wsi:ceprxx:v:03:y:2014:i:01:n:s1793969014500022 is not listed on IDEAS
    6. Yoshino, Naoyuki & Kaji, Sahoko & Asonuma, Tamon, 2016. "Exchange rate regime switching in Malaysia and Singapore in response to China’s move to a basket peg: A DSGE analysis," Journal of Asian Economics, Elsevier, vol. 46(C), pages 17-37.
    7. Manuk Ghazanchyan & Janet Gale Stotsky & Qianqian Zhang, 2015. "A New Look at the Determinants of Growth in Asian Countries," IMF Working Papers 15/195, International Monetary Fund.
    8. Guglielmo Maria Caporale & Luis A. Gil-Alana & Kefei You, 2016. "Exchange Rate Linkages between the ASEAN Currencies, the US Dollar and the Chinese RMB," CESifo Working Paper Series 5995, CESifo Group Munich.
    9. Vladimir Klyuev & To-Nhu Dao, 2016. "Evolution of Exchange Rate Behavior in the ASEAN-5 Countries," IMF Working Papers 16/165, International Monetary Fund.
    10. Keddad, Benjamin, 2016. "How do the Renminbi and other East Asian currencies co-move?," MPRA Paper 83782, University Library of Munich, Germany.
    11. Vithessonthi, Chaiporn & Tongurai, Jittima, 2014. "The spillover effects of unremunerated reserve requirements: Evidence from Thailand," Journal of Banking & Finance, Elsevier, vol. 45(C), pages 338-351.
    12. Chang Shu & Dong He & Jinyue Dong & Honglin Wang, 2016. "Regional pull vs global push factors: China and US influence on Asia-Pacific financial markets," BIS Working Papers 579, Bank for International Settlements.
    13. Kawai, Masahiro & Pontines, Victor, 2016. "Is there really a renminbi bloc in Asia?: A modified Frankel–Wei approach," Journal of International Money and Finance, Elsevier, vol. 62(C), pages 72-97.
    14. Volz, Ulrich, 2013. "RMB internationalisation and currency co-operation in East Asia," Working Papers 125, University of Leipzig, Faculty of Economics and Management Science.

    More about this item

    Keywords

    exchange rates; exchange rate regimes; East Asia; Chinese exchange rate policy; renminbi bloc; East Asian regionalism; dollar standard; monetary power;

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
    • F5 - International Economics - - International Relations, National Security, and International Political Economy

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