Research On East Asia's Pegging Regimes Under Post Bretton Woods System

East Asian newly emerging countries (EANECs) had pegging collectively to US dollar before Asian Financial Crisis. Though the exchange rate regime was quit during the crisis and was criticized, a lot of empirical tests show that all economies have restored pegging after the crisis. Entering the new millenary, collectively pegging to US dollar are becoming a hot issue both domestically and internationally. Domestically, the regimes of de facto pegging to US dollar have given rise to inflation pressure. Internationally, developed countries especially US have own US external imbalance even global economic imbalance to EANECs manipulating exchange rate. To explore desirable regimes to alleviate domestic and international pressures, this paper discusses the reasons, operating system, sustainability and exiting strategies of collectively pegging to US dollar in East Asia. And a conclusion is made that EANECs should exit from collectively pegging to US dollar and turn to regional exchange rates coordination.This paper consists of introduction, the body and the conclusion. Except the introduction and the conclusion, there are 7 parts in the whole paper. Part One reviews the limitation of international currency regimes on choice of exchange rate regimes. International monetary system basically regulates international exchange rates arrangements and national exchange rate regimes choices.Part Two summarizes developing countries preference to pegging regimes under post Bretton Woods System. Recently new theories and new empirical test methods all prove the desirability of EANECs pegging to US dollar.Part Three analyzes the inner stable mechanism, namely "Balance of Financial Terror" (BFT) behind the collectively pegging to dollar. It is by BFT that US is lying in capital flow from EANECs to narrow its huge current account imbalance. BFT, in essence, is Nash equilibriums of non-cooperative gaming between USA and EANECs and among EANECs themselves. As the important parts in EANECs' developing strategies, the collectively pegging to US dollar system is proved to generate active performance in both domestic and world levels.Part Four compares several typical cases of pegging to US dollar in the history: the adjustable pegging to dollar under Bretton Woods Systems, Latin American newly emerging countries' pegging to dollar and EANECs' pegging to dollar. The regimes of pegging to US dollar in EANECs under post Bretton Woods Systems have sole characteristics.Part Five explores the sustainability of collectively pegging to US dollar under BFT. The following facts illustrate that BFT is not sustainable. Firstly, US's persistent huge current account deficits and East Asian increasing current account surpluses have menaced the global economic balance. Secondly, the positive performance of pegging system has turned to be negative and hampered further development in EANECs. And lastly, major currencies fluctuate severely, which makes the regime of pegging to US dollar in EANECs extremely instable.Part Six designs the strategies of exiting from collectively pegging to US dollar in East Asia. This paper suggests that based on theory of soft exchange rates target, regional exchange coordination mean that EANECs peg to a similar currency basket, so that this region would realize stable regional exchange rates, getting rid of the shadow of BFT and realizing advancing regional monetary co-operation in East Asia.Part Seven goes back to the relationship between China's reforming of RMB regime and regional exchange rates coordination in East Asia. It would be mutual benefits in reforming regime of RMB in the summer, 2005 and regional exchange rates coordination in East Asia.In a word, this paper has the following breakthrough. Firstly, getting over the problem of insolating the research exchange rate regimes, this paper tries to combine the choice of exchange rate regimes in EANECs with the current international monetary system. Considering the unfairness in international monetary system, the fact that EANECs choose pegging to US dollar regime is desired at a certain degree. However as the conditions change, collectively pegging to US dollar can't be compatible with the current international monetary system, which causes EANECs burdened overdue responsibility in global economic imbalance. Obviously, one country can't resolve the regime choice dilemma by itself when the current international currency regime will not reform immediately.Secondly, trying to analyze the inner stable mechanism of EANECs collectively pegging to US dollar - BFT by using game theories . There are two stage games in BFT. The first is the game of Prisoner' Dilemma among 9 EANECs. It is uncooperativeness among the 9 economies which gives rise to they peg to US dollar collectively. The other is Stackelberg competition between US and EANECs. Under the regimes of collectively pegging to US dollar which is the result of uncooperative game, US can cheaply seize enough natural resources, technology and capital via current account deficits. Taking this advantage, US initiates action firstly and makes credible menace to EANECs. This constitutes the uncooperative game between US and EANECs.Thirdly, empirical tests are used to test de facto pegging to US dollar, performance of this regime and the effect of fluctuation between major currencies in East Asian newly emerging countries (EANECs). This paper does not use the work of other economists directly. On the contrary, it adds some new factors and eliminates some existing factors according to the requirements of research, to make an scientific conclusion.Fourth, soft exchange rate target is suggested as the theoretic guide of regional exchange rate coordination in East Asia in short run. Almost all the current documents, however, prefer to senior cooperation in East Asian regional monetary cooperation which can't help solving the dilemma faced by EANECs in the global imbalance. Regional exchange rate coordination belongs to junior stage of regional monetary cooperation so that it doesn't require candidates scarify their domestic development to exchange convergence. As for soft exchange rates target, it sets the margins or calibrates central exchange rates flexibly which especially shows more feasibility. Concretely, the paper designs a project that every emerging economy in East Asia pegs to a similar basket consisting of US dollar, Euro, Japanese yen and home currency of the last period. Such basket shows every economy's foreign trade and capital flow, avoiding central exchange rate overshooting. What's more, candidate economy pegging similar basket but not common basket to endow each with some flexibility in exchange rate policy and reduce exiting risk of candidates at discretion.Of course, because of the author's limitation in the research, there exist some drawbacks which are needed to resolve in the future. They are as follows:1. Though this paper attempts to set international currency regimes as the background to discuss the problem of exchange rate regimes choices in developing countries, some new theories such as noise theory are omitted for they do not have close relation to international currency regimes. But to do so leave some places un-complete in summarizing exchange rate regimes choices.2. When measuring the performance of pegging to US dollar in EANECs, several macro-indexes are computed but micro-indexes about domestic industries and firms are not considered.3. Being a regional exchange rates arrangement, the soft exchange rates target need to be improved. For example, more persuasive models should be built to test the construction of currency basket and calibration of central exchange rates and to estimate the transit costs of each economy transits from pegging regimes to regional exchange rates coordination.