Choice and coercion in East Asian exchange-rate regimes

The exchange-rate policies of East Asian states have far-reaching ramifi cations for international relations within the region, for their relations outside the region, and for the structure of the world economy. Many Asian states have somewhat famously kept their currencies competitively valued through soft pegging to (often undisclosed) currency baskets (Dooley et al. 2003 ; McKinnon 2005 ; Cohen 2008 ; and Eichengreen 2011 , among others). Although the US dollar is weighted heavily in these baskets, the currencies of several Southeast Asian countries tend to exhibit increasingly greater stability vis-a -vis the Chinese renminbi than vis-a -vis the US dollar (see also Volz 2010 and Cavoli and Rajan 2009 ). These currencies are in essence fl oating jointly against the dollar, albeit in a loosely managed way. The Japanese yen and Korean won follow a diff erent pattern, fl oating much more fl exibly against both the US dollar and the other Asian currencies, though the won has tracked the renminbi somewhat more closely since the global fi nancial crisis. 1This chapter examines the determinants of the national exchange-rate regimes in these states with two purposes in mind, one explanatory and the other conceptual. With respect to the explanatory purpose, it seeks to explain the choice of several Southeast Asian countries to shadow the renminbi and that of others to fl oat. What in particular is the importance of power relative to preferences in confi guring the policies of these governments? The rapid growth of China and its role as a competitor for both trade and foreign direct investment loom large, but these factors should be conceptualized with care. The fact that some degree of regional stability is being achieved by stabilizing against the dollar also presents a puzzle.