Analyze East Asian Regional Currency Anchors From The Perspective Of Trade Competition

With the continuous deepening of economic globalization,East Asia has gradually been integrated into a world manufacturing center.East Asia has a complete industrial structure and the trade links between countries in this region are becoming closer,forming a vertical chain of division of labor,delivering various kinds of products to all over the world.In the past two decades,the traditional East Asian trade pattern has changed a lot.Since the 1960 s and 1970 s,the "old triangle" trade pattern composed of the United States,Japan,and other East Asian countries has transformed into the "new triangle" trade structure of the United States,China,and other East Asian countries since 2000.China is not only a market provider of export products for other East Asian countries,but also a consumer market.It has overwhelmingly replaced Japan as the center of East Asia's supply chain network.The booming trade between East Asian economies has deepened the desire of countries to seek currency cooperation,maintained the strategy of export-oriented economic development,and stabilized exchange rates are their common aspirations.Before the Asian financial crisis in 1997,these East Asian countries relied heavily on the US dollar and the US final product market for a long time,and adopted a pegged exchange rate policy to protect their exports.After the Asian financial crisis,East Asian countries realized that the East Asian currency system centered on the US dollar was not benificial to their economic development goals.Since then,they have continued to explore new exchange rate mechanisms to stabilize the exchange rate.Today,the exchange rate systems of the major East Asian economies have shifted from pegging to a single currency to pegging their respective baskets of currencies.The composition of currency baskets and currency weights vary in different countries.As China 's trade status in East Asia rises,East Asian economies peg a portion of their exchange rates to the CNY,which is a manifestation of the CNY's function of pricing.On studying the issue of CNY internationalization,we must not only observe the degree of CNY internationalization in terms of the amount of CNY settlement,that is,the means of currency payment,but also focus on fostering the valuation function of CNY.However,the competitiveness and complementarity of trade between neighboring countries in East Asia and China coexist,and the influence of the CNY in this region has a natural advantage.This article analyzes the changes in the pegged currency basket of East Asian economies from the perspective of the trade transmission mechanism.Fan Gang,Guan Zhixiong and Yao Zhizhong(2006)proposed a trade structure analysis method based on the technical distribution of tradable goods,which defined the indicators of trade complementarity and competition stress between the two countries.This article calculates the changes in the complementary trade relationship between China,the United States,Japan,and major East Asian economies since the CNY exchange rate reform on July 21,2015.Then,based on the classic currency weight analysis framework of Frankel and Wei(1994),the changes in the weight of the dollar,yuan,euro,and yen in the currency basket of major East Asian economies are measured.Due to the policy spillover effect of the CNY exchange rate reform,three important time nodes was added,the sample was divided into four stages,and perfomed least squares regression in the four stage.State space model is introduced again to show the dynamic changes of the currency basket in detail.The study found that the CNY “21 July” exchange rate reform has increased the influence of the CNY in East Asia;after the “8/11” exchange reform,the weight of the CNY in the East Asian currency basket decreased.Compared with Japan and the United States,China and the East Asian economies are the most complementary.However,due to the large export volume gap between China and the East Asian open economies,China has exerted greater pressure on the major East Asian economies.Anchoring the CNY is conducive to the stability of the country's exchange rate for the East Asian countries.