Intra-Regional Currency Linkage and the Evolution of Exchange Rate Regime of the Asean Region

This paper investigates the intra-regional currency linkages and evolution of exchange rate regimes of the Association of South East Asian Nations (ASEAN) region. Do nations follow regimes they are classified into? Have exchange rate regimes of ASEAN nations become more flexible and less dependent on the US dollar? Are the intra-regional currency linkages strong enough for ASEAN nations to form a monetary union? Answers to these are important as the official regimes announced by ASEAN countries may not reflect their actual behaviors. Using monthly exchange rates per unit SDR and foreign exchange reserves data spanning the entire post-Bretton Woods era (1973-2014), and employing the Frankel-Wei estimation model, I find that before the Asian financial crisis period (1973-1996), ASEAN currencies were mostly de facto dollar peggers and the intra-regional currency linkages were very weak. However, post-crisis (1999-2014) ASEAN currencies have become more flexible and the intra-regional currency linkages have increased considerably