After the Crisis, the East Asian Dollar Standard Resurrected: An Interpretation of High-Frequency Exchange-Rate Pegging
Before the 1997-98 Asian financial crisis, a de facto East Asian dollar standard (EADS) had prevailed in most East Asian economies. During the crisis, the massive deflationary pressure in dollar terms in the non-crisis countries that did not devalue underscores the significance of East Asian countries stabilizing their dollar exchange rates collectively. This paper substantiates the author's earlier assertions that an EADS is a viable (and probably the only viable) regional monetary anchor. Although the theoretical debate after the crisis seems to lean towards more flexibility in the exchange rate regimes for the region, empirical evidence suggests that in fact, the EADS has reemerged. This paper also observes that a “honeymoon” effect in the aftermath of the crisis seems to be weakening the governments’ resolve to improve prudential regulations and complete needed structural reforms. In concluding, the paper discusses how the EADS could help curb “hot” money flows and prevent future financial crises.