Global Development Perspective
Working Paper No. 14.003
November 10, 2014
Emerging Asia Currencies Anchor to Emerging Currency Baskets?
The Role of Renminbi as an Anchor Currency in Southeast Asia
Xu Qiyuan, Yang Panpan
Abstract: With the time varying parameter regression based on the State Space model, the empirical research in this paper finds that since the global financial crisis, the East Asian economies currencies have moved towards basket-peg. Nevertheless, whether there is a convergence among the selection of currency anchors in the baskets still remains doubtful. We have also reach other two conclusions:(1) the US dollar still plays a dominant role in the basket, and renminbi‟s influence increases just a little; (2) quite opposite to the conventional wisdom, the global financial crisis enhances the role of US dollar and euro and undermines the role of renminbi and Yen within this area.
Key Words: East Asian, exchange rate, anchor
1. Introduction
After South East Asian Financial Crisis, eclipsing or partly eclipsing role of US dollar within this region attracted a lot of attention from both academia and politician. The literature on the Asian currencies exchange rate regime arrangement has grown very large over the last 15 years. According to the different choices, there are at least three major proposals: free floating, pegging to a single currency and pegging towards a basket anchor.
……
2. Literature review
……
3. Methodology
……
4 Conclusions
According to the results shown in figure 1 and 2, the basket composition of the major East Asian currencies are more stable after global financial crisis, that is to say, the time varying parameters after the global financial crisis are much more stable than ever have been. The US dollar still keeps a lion share in all of East Asian currencies basket anchor. The share of US dollar ranges roughly from 60% to 100%.
……