Proposed Strategy for a Regional Exchange Rate Arrangement in Post-Crisis East Asia
After discussing major conceptual, and empirical issues relevant to the exchange rate policies of East Asian countries, the authors propose a regional exchange rate arrangement designed to promote intra-regional exchange rate stability, and regiona...
| Main Authors: | , |
|---|---|
| Language: | English en_US |
| Published: |
World Bank, Washington, DC
2014
|
| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/2000/12/828284/proposed-strategy-regional-exchange-rate-arrangement-post-crisis-east-asia http://hdl.handle.net/10986/19756 |
| Summary: | After discussing major conceptual, and
empirical issues relevant to the exchange rate policies of
East Asian countries, the authors propose a regional
exchange rate arrangement designed to promote intra-regional
exchange rate stability, and regional economic growth. They
argue that: 1) For developing countries, exchange rate
volatility tends to significantly hurt trade and investment,
making it inadvisable to adopt a system of freely floating
exchange rates. 2) Given the high share of intra-regional
trade, and the similarity of trade composition in East Asia,
exchange rate policy should be directed toward maintaining
intra-regional exchange rate stability, to promote trade,
investment, and economic growth. 3) the current policy of
maintaining exchange rate stability against U.S. dollar as
an informal, uncoordinated mechanisms for ensuring
intra-regional exchange rate stability is sub-optimal. A
pragmatic policy option - conducive to a more robust
framework for cooperation in monetary, and exchange rate
policy - wold be a coordinated action to shift the target of
nominal exchange rate stability, to a basket of tri-polar
currencies (the U.S. dollar, the Japanese yen, and the
Euro). This alternative would better reflect the
region's diverse structure of trade, and foreign direct
investment. The authors envision no rigid peg. Instead, at
least initially, each country could choose its own formal
exchange rate arrangement - be it currency board, a crawling
peg, or a basket peg with wide margins. At times of crisis,
the peg might be temporarily suspended, subject to the rule
that the exchange rate would be restored to the original
level as soon as practical. Only in extreme circumstances,
would the level be adjusted to reflect new equilibrium conditions. |
|---|