A Study On East Asian Exchange Rate Regime After Exchange Rate Reform

As the collapse of Bretton Woods System, most of the countries who pegged its own currency to US dollar had abandoned this policy. And many of them have pegged their currency to a basket of currencies. In Asia, as the shock of1997crisis disappeared, many countries also adopted this kind of peg system.And since the economic development and increase of foreign reserves, Asian country now plays a more important role in global financial system. The Asian countries begin to take regional policy coordination into account in order to promote the effect of their monetary policies. Therefore, if we begin to study the exchange rate policy of China, we have to consider the impact of other Asian countries.The main topic of our article is to investigate the choice of optimal currency weight in basket currency exchange regime of Asian countries. And our main innovation is to take the weight of other countries into account. We improve the original model of Branson and Katseli in order to adapt the real environment of East Asia. And we also conduct a research in framework of game theory to investigate the strategic relation between the optimal weight choices of East Asian countries.We find a strategic complementary relation between the weights of East Asian countries. And in some circumstance, we can see a coordinate failure. We also give the solution of improving the accuracy of Branson and Katseli model. We find if we can calculate the weight of other East Asian countries, we can promote the accuracy of Branson and Katseli model.Finally, by using the daily data of last5years, we study the weight of currency which East Asian country pegging to, to give the dynamic description of currency weight of East Asian countries. We find as4main countries in South East Asia decrease dollar weight in their currency basket, the theoretically optimal move of China is to decrease the weight of dollar in its currency basket.