Exchange Rate Regime Transition Dynamics in Southeast Asia

This paper investigates the currency regime choices of six Southeast Asian (SEA) countries, namely Indonesia, Korea, Malaysia, Philippines, Singapore and Thailand, for the period 1973-99 from the perspectives of optimum currency area (OCA), macroeconomic stabilization and currency crisis. Regime transition dynamics are insignificant among three broad categories of regimes, such as fixed, intermediate and floating regimes but significant among a variety of intermediate regimes. Economic development, financial liberalization and inflation are found to be significant to the pegged regime choice, while high degree of trade openness, capital mobility, real exchange rate volatility and fiscal performance are significant to the choice of a more flexible regime. However, the policy of financial (capital account) liberalization under a pegged (intermediate) regime was paradoxical in nature and has been proved to be inappropriate in the aftermath of crisis. Except this, the static regime choice in SEA countries is largely consistent with the predictions of international macroeconomics.