ABSTRACT
Before the 1997/98 Asian crisis, the East Asian countries China, Hong Kong, Indonesia, Korea, Malaysia, the Philippines, Singapore, Taiwan, and Thailand pursued a common exchange rate peg to the US dollar. This (informal) East Asian dollar standard (McKinnon and Schnabl 2004a) was beneficial for growth in the region for several reasons. First, it ensured macroeconomic stability by bringing the domestic rates of inflation close to the US level. Second, the joint peg to the dollar provided low transaction costs not only for trade with the US but also for intra-regional trade flows, which make up about 50 per cent of overall East Asian trade. Third, exchange rate stability provided low transaction costs for short-term and long-term international capital flows.
