Fear of Floating in East Asia?

We examine the de facto exchange rate arrangements in eight East Asian countries during the post‐Asian crisis period. The empirical results suggest that three countries adopted a hard peg or a peg with capital account restrictions, whereas five countries moved toward a more flexible exchange rate arrangement in the post‐crisis period. Three of these five countries (Korea, Indonesia and Thailand) achieved a level of exchange rate flexibility close to the level accomplished in a free floater such as Australia. These results suggest that ‘fear of floating’ in East Asia is not prevalent in the post‐crisis period, supporting the bipolar view of the optimal exchange rate regime.