Exchange Rates under the East Asian Dollar Standard
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Exchange Rates under the East Asian Dollar Standard

Living with Conflicted Virtue

By Ronald I. McKinnon

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Summary

The increasingly integrated economies of East Asia—China, Hong Kong, Indonesia, Japan, Korea, Malaysia, the Philippines, Singapore, Taiwan, and Thailand—face the dilemma of how to achieve exchange-rate security in the absence of a unifying "Asian euro." The US dollar has become the region's dominant intraregional trading currency as well as the monetary anchor to which East Asian economies informally peg their currencies. In this timely and original analysis of the benefits and risks of an East Asian dollar standard, Ronald McKinnon takes issue with the conventional view that urges flexible exchange rates on financially fragile economies. He argues instead that East Asian countries should coordinate their policies to keep their exchange rates stable against the dollar. McKinnon develops a conceptual framework to show where the conventional wisdom on exchange rates has gone wrong. Pressure on the "virtuous" high-saving dollar-creditor East Asian nations to appreciate their currencies leads to a "conflicted" choice between a possible deflationary slump if they do appreciate and threatened trade sanctions if they do not. Analyzing interactions among the East Asian economies, McKinnon explains the rationale, and the need, for greater exchange-rate security in the region, pointing to the soft-dollar pegs adopted by these nations as steps in the right direction. He suggests that the dollar standard in East Asia could be rationalized through collective action by national governments and considers the effect of American monetary and trade policies on the East Asian economy.

Hardcover

Out of Print ISBN: 9780262134514 288 pp. | 9 in x 6 in 72 illus.

Paperback

Out of Print ISBN: 9780262633413 288 pp. | 9 in x 6 in 72 illus.

Endorsements

  • McKinnon argues persuasively that the ongoing efforts of American analysts and politicians to urge Japan, China, and other Asian countries to appreciate their currencies against the dollar is fundamentally misguidedindeed, it would unnecessarily damage those countries and the world economy. Necessary corrective reading for all enthusiasts of floating exchange rates.

    Richard N. Cooper

    Boas Professor of International Economics, Harvard University

  • McKinnon argues persuasively that the ongoing efforts of American analysts and politicians to urge Japan, China, and other Asian countries to appreciate their currencies against the dollar is fundamentally misguided–indeed, it would unnecessarily damage those countries and the world economy. Necessary corrective reading for all enthusiasts of floating exchange rates.

    Richard N. Cooper

    Boas Professor of International Economics, Harvard University