EconStor >
Asian Development Bank Institute (ADBI), Tokyo >
ADBI Working Paper Series, Asian Development Bank Institute >

Please use this identifier to cite or link to this item:

http://hdl.handle.net/10419/53679
  
Title:Towards an expanded role for Asian currencies: Issues and prospects PDF Logo
Authors:Chow, Hwee Kwan
Issue Date:2011
Series/Report no.:ADBI working paper series 285
Abstract:Notwithstanding incumbency advantages and network effects enjoyed by the United States (US) dollar, considerations about the stability of its value have led Asian countries to fear they are holding their foreign exchange reserves in a depreciating currency. At the same time, it pays for the regional countries to adjust their reserve currency composition to match the point of reference of their exchange rate policy. This paper examines empirically which regional currency or currencies seem to matter for exchange rate determination in Asia beyond the very short term. To this end, we employ country-specific Vector Autoregressive (VAR) models to compare the relative impact which fluctuations in the Asian Currency Unit (ACU), yuan, and yen separately have on movements of Asian currencies. Contrary to recent evidence based on daily data, we found monthly exchange rates variations in the region are more heavily influenced by the cumulative effect of key Asian currencies than by the yuan or the yen individually within the sample period we used. To the extent that exchange rates in the region shift over time from benchmarking the US dollar towards a broad range of Asian currencies, Asian central banks will find it more attractive to cross-hold Asian bonds. This calls for the development of deep private markets in such assets, as well as institutional prerequisites for internationalizing key regional currencies.
JEL:F31
F33
Document Type:Working Paper
Appears in Collections:ADBI Working Paper Series, Asian Development Bank Institute

Files in This Item:
File Description SizeFormat
66205802X.pdf402.54 kBAdobe PDF
No. of Downloads: Counter Stats
Download bibliographical data as: BibTeX
Share on:http://hdl.handle.net/10419/53679

Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.