Taking Back Globalization

Duggan, Marie Christine

doi:10.1177/0486613412475191

Cited by 4 publications

(3 citation statements)

References 3 publications

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“…Similar counterfactual exercises have been used to study the hypothetical effects of ICUs by Duggan [1] and Hirai [21]. We evaluate the RSE for ACU by adding few more countries from South East Asia-Thailand and Malaysia and then compare the results.…”

Section: Counterfactual Extension Of Acumentioning

confidence: 99%

“…International Clearing Unions (ICU) 1 are one of the instruments for economic integration and are expected to create conducive environment for increase in trade, to save foreign exchange reserves (henceforth, reserves) and pave the way for higher forms of economic integration [2] [3]. International trade is settled by payments in acceptable foreign currencies that are transmitted through corre-1 spondent banks.…”

Section: Introductionmentioning

confidence: 99%

“…Piffaretti [8] also supports the idea of a multilateral international clearing house that addresses the shortcomings of the national currencies reserve-based system by allowing adjustment through the debtors. Studies have also argued that ICUs would counter dampening effect on trade due to lack of reserves by putting the burden of adjustment on both surplus and debtor countries (see for example [1] RSE can also occur without an ICU when countries have bilateral trade settlement arrangements. However, such RSE will be less than or equal to what can be generated by participating in an ICU.…”

Section: Introductionmentioning

confidence: 99%

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Is There a Reserve Saving Effect of International Clearing Union? Testing for Asian Clearing Union

Shekhawat¹,

Kathuria²

2017

TEL

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International Clearing Unions (ICU) are expected to save international reserves for their members. This study derives a benchmark for reserves saving (RSE) that includes all net reserve savings net of costs for inter-temporal credit that accrue from the clearing process within any ICU. As a test case, RSE of Asian Clearing Union (ACU) is computed and is found to be US $4.5 billion per year over the period 2000 to 2015. RSE ranges from zero to US $8 billion. A counterfactual extension of ACU membership to Thailand and Malaysia indicates that the RSE may not necessarily increase. The RSE can be extended to any clearing system that follows the principles of inter-temporal credit, multilateral netting and uses single currency for netting and settlement. RSE of such a clearing systems will depend on the balance of credit and debit positions of members. RSE is highest when the trade is perfectly balanced and the countries follow a floating rate regime.

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Section: Counterfactual Extension Of Acumentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

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Is There a Reserve Saving Effect of International Clearing Union? Testing for Asian Clearing Union

Shekhawat¹,

Kathuria²

2017

TEL

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International Monetary Systems in Historical Perspective

Baimbridge

Litsios

Jackson

et al. 2017

The Segmentation of Europe

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Effect of International Clearing Union on exchange market pressure

Shekhawat

Kathuria

2018

JES

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Purpose The purpose of this paper is to enhance our understanding of effects of International Clearing Unions on the exchange market pressure (EMP). Using Asian Clearing Union (ACU) as an example of a typical International Clearing Union, the authors infers that ACU has not been very successful in synchronizing the EMP in the region. Other countries that are not members of such clearing union but are interested in monetary cooperation with other countries should consider the behavior of their EMP indices before attempting any form of integration. The study also provides a generic methodology for using EMP as an indicator for predicting the feasibility of monetary cooperation across countries. Design/methodology/approach An EMP model using the median absolute deviation is derived to reflect the policy preferences of each country. The weights for change in foreign reserves and interest rate differential are derived using analytical models. The index is then applied to ACU as a case study using monthly data from 2006 to 2015 for Bhutan, Bangladesh, Nepal, India, Pakistan, Sri Lanka and Iran. The descriptive statistics are studied to find the possibility of short-run relationship between the exchange rates, foreign exchange reserves and interest rate differential. The longitudinal data set generated is checked for cointegration to evaluate the EMPs of the countries. Findings The study finds that the EMP of ACU members’ shows similarity only in short-term movement but have no cointegration of EMP indices indicating the absence of long-term relationship. The absence of long-term cointegration of EMP for ACU members also indicates that ICU membership may not necessarily lead to similarity in exchange rate policies that facilitate the formation of a currency union. Creation of an ICU is not a sufficient condition for the formation of a currency union. The study also finds that the sample countries have faced persistent depreciation pressures in the period. The preferred tool for the management of EMP is direct intervention by sale and purchase of foreign currency. Interest rate changes are found to have the most significant effect on EMP. Research limitations/implications The EMP model limits itself only to the study of exchange rates, foreign reserves and interest rates. Exchange rate variation and policy responses there to are known to be driven by other factors such as speculation, political factors, autonomous capital flows and micro-level dynamics of exchange markets like order flows among others. The EMP model is a simplification of the market dynamics and does not look for associations on the account of these factors. The model is evaluated for only one ICU where member countries regulate exchange rates. The study of ICUs that comprises free float currencies and pegged currencies may yield different results. Practical implications Results indicate that the member of any ICU such as ACU cannot assume that its participation will serve as a foundation for creating higher forms of economic unions such as currency unions. In the absence of any long-term relationship between the EMP of countries, any attempt by these countries may cause the exchange rates to deviate further. This leads to the conclusion that the members of ACU should avoid any attempts to form currency unions or use a common currency for its settlement. Social implications Various countries that are considering the formation of currency union or the use of a common currency peg may like to examine its feasibility using EMP as a tool. Using EMP, they may be able to derive short-term and long-term strategies for pursuing their objectives. Originality/value There are few other studies that use EMP as an index for measuring the feasibility of formation of a currency union among countries that are the member of an ICU. While earlier studies apply EMP to a group of countries, none attempt to modify the index to reflect the EMP that is likely to affect central bank policy action. Few studies have attempted to use EMP to study the feasibility of formation of a currency union in South Asia based on exchange rate markets itself.

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Taking Back Globalization

Cited by 4 publications

References 3 publications

Is There a Reserve Saving Effect of International Clearing Union? Testing for Asian Clearing Union

Is There a Reserve Saving Effect of International Clearing Union? Testing for Asian Clearing Union

International Monetary Systems in Historical Perspective

Effect of International Clearing Union on exchange market pressure

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