Optimal pegs for east Asian currencies

It has been evidenced that the U.S. dollar is prominent in the exchange rate regimes of Asian countries. This paper shows that the relative stability of Asian exchange rates against the U.S. dollar until the 1997 crisis is not accounted for by the theory of optimum currency areas, in contradiction to the situation in Europe vis-a-vis the deutsche mark. An alternative framework is proposed where the absence of a yen bloc is explained by the mismatch between the country distribution of trade and the currency distribution of the debt. It is shown that the lack of cooperation makes Asian countries underweight the yen in their implicit basket pegs. J. Japan. int. Econ., March 1999, 13(1), pp. 44-60. University of Lille 2 (CADRE) and CEPII, 9 rue G. Pitard, 75015 Paris, France. (C) 1999 Academic Press.