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Currency Arrangements in East Asia: Anchor or a basket?
Given the nature of East Asia’s economic structure, interregional exchange rate stability is an essential requirement for regional economic integration. One way to achieve exchange rate stability is for the region to adopt an anchor currency or an appropriate currency basket system. However, the choice of potential anchor is a major question for policy planners. This paper examines the role of 5 major currencies as a candidate for an anchor currency in the East Asian region. In particular, the paper examines the dynamic linkages between a selected sample of East Asian currencies with each potential anchor currency (the US dollar , Australian dollar, Japanese yen, euro and the Chinese renminbi) Utilizing the recently developed Yamamoto and Kurozumi (2006) technique, this paper does not find any support to the much debated emergence of a ‘yen bloc’, euro bloc, or ‘koala bloc’, which suggests that the Japanese yen, euro or Australian dollar do not play a significant role in the East Asian currency market. The empirical evidence brought forward in this paper suggests that the US dollar is still a dominant currency in East Asian region.
Later we extend the analysis to investigate an appropriate currency basket for the region. In this part of the paper, we examine the role of major world currencies to determine the weights of each of them within East Asian currency system. Again US dollar seems to have the highest weight in a basket arrangement.
Professor Ahmed Khalid earned his Ph.D. in economics from Johns Hopkins University, USA. He then worked at the National University of Singapore (NUS) before joining Bond University in 2001. Professor Khalid has worked as a consultant for the World Bank, Limberg Institute of Financial Economic (LIFE), the Asian Development Bank (ADB), CitiGroup, Haans Seidel Foundation and the UNDP and has held visiting positions at the Washing and Lee University, USA; Nanyang Technological University, Singapore; and Lahore University of Management Sciences, Pakistan. In 2011, he was invited as an advisor to the Ministry of Planning in Pakistan.
Professor Khalid is currently Head of Department (Economics and statistics). He is also Co-Director of the Globalisation and Development Centre at Bond University, member of the U.K. based International Growth Centre (Macro Research Cluster Pakistan Chapter) and Director of Quality Assurance Program for Sur University College in Oman. Professor Khalid’s research interests include applied macroeconomics and monetary economics, applied econometrics, financial crisis and financial sector reforms with particular reference to emerging economies in East- and South-Asia and globalization and financial market integration. He is Associate Editor of Singapore Economic Review. His publications include four books published by Edward Elgar Publishing Co. U.K., internationally refereed articles and chapters in books.