Should the Asian NICs peg to the yen?
Recently, the calls for closer monetary co-operation between the Asian NICs and Japan have been becoming louder. The following article discusses the pros and cons of pegging to the yen and compares them with those of a basket peg.
KeywordsExchange Rate Current Account Foreign Exchange Real Exchange Rate Purchase Power Parity
Unable to display preview. Download preview PDF.
- 1.Hobart Rowen: U.S. to ask Taiwan, South Korea to Allow Currencies to Rise, in: The Washington Post, July 30, 1986.Google Scholar
- 2.See, e.g., Bala Balassa and John Williamson: Adjusting to Success: Balance of Payments Policy in the East Asian NICs, Institute for International Economics, Washington D.C. 1987; Rudiger Dornbusch and Yung Chul Park: Korean Growth Policy, Brookings Papers on Economic Activity, Vol. 2, 1987, pp. 389–454; Morgan Guaranty: World Financial Markets, January 1987 and March 1988.Google Scholar
- 3.“Herr Pöhl reviews recent monetary and economic trends with particular reference to East Asia”, in: BIS Review, 18th March 1988, p. 2.Google Scholar
- 4.W. Max Corden: Protection, Growth and Trade, Oxford 1985, Chapters 17 and 18.Google Scholar
- 5.See BIS: 58th Annual Report, Basle, June 1988, pp. 55–61.Google Scholar
- 6.John Williamson: A Survey of the Literature on the Optimal Peg, in: Journal of Development Economics, Vol. 11 (September 1982), pp. 39–61, reprinted in: Chris Millner (ed.): Political Economy and International Money, Selected Essays of John Williamson, New York 1987, pp. 94–116.Google Scholar
- 7.Edward Tower and Thomas D. Willett: The Theory of Optimum Currency Areas and Exchange-Rate Flexibility, Special Papers in International Economics, No. 11, Princeton University 1976, p. 15; another valuable survey on the optimum currency area approach is provided by Yoshihide Ishiyama: The Theory of Optimum Currency Areas: A Survey, in: IMF Staff Papers, Vol. 22.2, July 1975, pp. 344–383.Google Scholar
- 8.Low public debt and high export orientation have distinguished Korea from Brazil and Mexico in solving debt problems in a growth-oriented way. See Helmut Reisen: Export Orientation, Public Debt and Fiscal Rigidities: The Different Performance in Brazil, Korea, and Mexico, in: Journal of International Economic Integration, Vol. 3.2, Autumn 1988, forthcoming.Google Scholar
- 9.Peter B. Kenen: The Theory of Optimum Currency Areas: An Eclectic View, in: R. A. Mundell and A. K. Swoboda (eds.): Monetary Problems of the International Economy, Chicago 1969, pp. 41–60.Google Scholar
- 10.Cf. Helmut Reisen and Axelvan Trotsenburg: Developing Country Debt: The Budgetary and Transfer Problem, OECD Development Centre Studies, Paris 1988.Google Scholar
- 12.See e.g. D. Cohen, J. Melitz and G. Oudiz: The European Monetary System and the Franc-Mark Asymmetry, CEPR Discussion Paper No. 245, London, May 1988.Google Scholar
- 13.For theory, cf. Stanley W. Black: Exchange Policies for Less Developed Countries in a World of Floating Rates, Essays in International Finance, No. 11, Princeton University 1976; and John Williamson, op. cit.; A Survey of the Literature on the Optimal Peg, in: Journal of Development Economics, Vol. 11 (September 1982), pp. 39–61, reprinted in: Chris Millner (ed.): Political Economy and International Money, Selected Essays of John Williamson, New York 1987, pp. 94–116.;for empirical evidence, see Bela Balassa: The International Monetary System and Exchange Rate Policies in the Developing Countries, World Bank DRD Discussion Paper No. 294, May 1987.Google Scholar
- 14.Whereas Japan's total trade with the NICs still constituted 10.6 percent in the first quarter of 1986, it had increased to 16 percent by the last quarter of 1987. Data Resources, in: Japanese Review, 1988, pp. 61–73.Google Scholar
- 15.Cf. Herbert Giersch: Real Exchange Rates and Economic Development, Kiel Working Papers No. 218, November 1984.Google Scholar
- 16.Cf. Rudiger Dornbusch: Doubts About the McKinnon Standard, in: Journal of Economic Perspectives, Vol. 2.1, Winter 1988, pp. 105–112.Google Scholar
- 17.Cf. Sebastian Edwards: The Order of Liberalization of the External Sector in Developing Countries, Essays in International Finance, No. 156, Princeton University, December 1984.Google Scholar