Currency Basket Regimes for Southeast Asia: The Worst System with the Exception of All Others

Japanese Yen and East Asian Currencies

“…Recent discussions on the role of the Japanese yen in East Asia usually point out the fact that the East Asian currencies, which were implicitly pegged to the US dollar, were over-valued compared with the Japanese yen before the crisis period and that it was one of the deep roots of the crisis; see Kwan (1998), Ohno (1999) and Rajan (2000Rajan ( , 2002. Even McKinnon (2000a), who advocates a dollar zone in East Asia, states that the dollar zone can be successful if, along with the satisfaction of other conditions, the yen-dollar exchange rate is stable.…”

“…As the East Asian countries are seeking a new exchange rate regime after the crisis, various systems, that can reflect the economic linkage between Asian countries and Japan, are being proposed. 3 Among them, the most frequently proposed and discussed is the idea of a multiple-basket peg regime which is supported by 274 Downloaded by [La Trobe University] at 08:55 16 June 2016 Williamson (1999), Yamashita (1999), Kwan (2000), Rajan (2000Rajan ( , 2002 and Kim and Ryou (2001) among others. Some of the researchers (Kwan 2000;Kim and Ryou 2001) discuss the possibility of a yen bloc, but state it is not a practical solution at this moment.…”

Costs and benefits of a common currency for the ASEAN

“…It is possible to mitigate some of these adverse effects of floating exchange rates by hedging against exchange rate fluctuations. However, hedging involves nonnegligible transaction costs (Adler 1996, Friberg 1996, Rajan 2000. Development of perfect hedging instruments may even be difficult in practice.…”

“…Development of perfect hedging instruments may even be difficult in practice. This may explain why in a 1992 survey of nonfi-Section II Perspectives on Optimum Currency Area nancial Fortune companies, while 85 percent of the respondents hedged, only 22 percent hedged fully (Rajan 2000).…”