Banking, Money And Finance Essay

1896 words - 8 pages

Before the Asian financial crisis in 1997, facto dollar peg occurs in East Asian economies. Most East Asian economies except Japan had their exchange rates comparatively fixed relative to the US dollar, and tend to focus on control monetary aggregates. Without of the foreign exchange controls, this implicit no independence of monetary policy, and the loosing of capital controls during the period created the factors causing to the Asian financial crisis. Monetary policy is to a wide scope constrained by the exchange rate regime. It is a fixed exchange rate that able to stimulate capital inflows of an economy and provides necessary protection from speculative attacks. The weakness of this regime is there are high interest rates needed to maintain growing in economies lead to increase in investment. After the financial crisis, most of the Asian countries still rely on the de facto dollar regimes. At that time, some analysts found that dollar peg benefit to contribute to lower transaction costs, lower inflation, weaker currency attack and lead to stabilization policies constitute. Contrary, if a country does not meet the criteria of OCA will difficulty for the country share a common currency.
Rate of exchange is a value of one currency in terms of another country’s currency. It affects the flow of output and capital in a country, and impact on the balance of payments. In order to enhance competitive and stability economic growth, governments attempt to maintain stability of a currency through various exchange rate regimes. The success of the Europe has enlightened interest in monetary integration in different parts of the worlds. Regional monetary and financial cooperation is one of the most controversial issues in East Asia. The Asian financial crisis has become the issue why East Asia turns to monetary integration. Regrettably, the progress of regional monetary integration in East Asia was sluggish. Monetary cooperation in East Asia began paradoxically, with a one-sided decision by Japan. Since the launch of the Chiang Mai Initiative in 2000, there has been nearly no major progress on East Asian monetary arrangements.
Before the financial crisis in 1997, facto dollar peg occurs in East Asian economies. It is a fixed exchange rate that able to stimulate capital inflows of an economy and provides necessary protection from speculative attacks. The weakness of this regime is there are high interest rates needed to maintain growing in economies lead to increase in investment. After the financial crisis, most of the Asian countries still rely on the de facto dollar regimes. At that time, some analysts found that dollar peg benefit to contribute to lower transaction costs, lower inflation, weaker currency attack and lead to stabilization policies constitute. Contrary, if a country does not meet the criteria of OCA will difficulty for the country share a common currency.
Currency basket peg is another regime which occurs after the dollar peg. Many...

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