The East Asian dollar standard

American complaints that East Asia's softly pegged dollar exchange rates aggravate the huge American trade deficit are misplaced. Because of massive U.S. government fiscal deficits and very low saving by American households, the relatively high-saving East Asian countries are virtually forced to run export surpluses whatever the exchange rate regime. But with the sharp rise of intra-East Asian trade and economic integration, mutual exchange rate stability among East Asian countries is devoutly to be wished. In the absence of an "Asian euro," however, the only feasible way of achieving this mutual exchange stability is for East Asian governments individually to peg the region's dominant key currency: the U.S. dollar. (C) 2004 Elsevier Inc. All rights reserved.