Pegged Exchange Rate System In East Asia And Outward-Looking Economic Development

The dissertation described the pegged exchange rate policies in East Asia countries. With the chronological method, we divided the economic development of East Asia into three stages: high-growth stage, currency crises stage and economic recovery stage. And then we discussed the evolution of the pegged exchange rate policies of East Asia, their regress characteristics and relationship with economic growth factors. In the end we discussed the reforming methods of the pegged exchange rate policies and their corresponding development strategies and policies.For the outward-looking growth countries, pegged exchange rate policies promote the trade and investment. But with the development and openness of the outward-looking growth economies, exchange rate variation pressure becomes prominent, and makes it more difficult to maintain the exchange rate level; when economic crises comes, the pegged exchange rate policies will prevent recovery of economical imbalance. With reference to the present development of currency crises and speculation model, the healthy status of East Asia countries is mainly up to the combined nation power and the stability and healthy status of the economical environment. The key element for a country to recover from an economical crisis is the confidence of the market, which based on the nation's economical power and basics. The currency has reverse effects on the variation of a nation's economy. For a fragile financial system and open emerging economies, the pegged exchange rate policies are more vulnerable to economical or currency crisis. With the development of outward-looking economy, when the economy shrinks, capital inflow increases and fundamentals deterioration caused by expansionary internal demands happens; currency crisis will be intrigued with speculation shock. The pegged exchange rate policies will amplifier this crisis.The currency crisis totally destroyed the pegged exchange rate policy of the East Asia countries. Most countries adopted the flexible exchange rate policy. However, with the recovery of economy, many countries re-take the pegged exchange rate policy after 1998. Many economists, such as McKinnon, investigated on the phenomenon. They found all those countries except Indonesia who adopted flexible exchange rate policy in the crisis changed their currency policy to high frequency US dollar pegging strategy. Some new theories about the pegged exchange rate regression of East Asia countries were published. The dissertation analyzed the phenomenon based on these theories. The analysis showed that the main reasons for the regression phenomenon are the industrial structures of these countries which slowed the upgrade of trade and the imperfect currency market. At the same time, the close economical relationship and common business cycle also are the causes for the regression to pegged exchange rate policy.Although the regression is a reasonable choice of present economical development, the intervention on currency stability, no mater it is low frequency peg or high frequency peg, caused internal conflicts and crisis. The dissertation studied the'exit strategy'theory, the'cost and benefit'theory and other theories based on the exit strategy theory. And we suggested the new exchange rate policy reforming, especially when the pegged rate policy of East Asia countries was in the stage of diminishing benefits and cost increase. The out burst of economical crisis is the representation of the delay on pegged rate policy. At present conditions, it is still not suitable for the East Asia countries to change their pegged rate policy to flexible rate policy. The optimum choice for those countries should be the intermediate exchange rate between the bi-poplars. And these countries should choose the basket currency pegged wideband exchange rate, and use macro-economical policies to reduce the shock to local economy caused by exchange rate policy change.In the end, the dissertation analyzed the pegged rate policy of China and its evolution. The pegged rate policy also played a very important role in the economical opening period of China. But its performance is now obviously on the diminishing benefit stage. With China's economical importance increase and economical imbalance deteriorate, the exit of pegged US dollar rate policy and adoption of flexible exchange rate policy become unavoidable. The gradual exit is the optimum choice to avoid shock and rebuild economical balance in this change. And appreciation is not the only cure to economical imbalance of China. Other policies are needed to work with. It is absolutely necessary to correct the outward-looking development policy which relays totally on foreign investment and trade, and take the domestic-demand-led growth strategy instead.