Why do Countries Peg the Way They Peg? The Determinants of Anchor Currency Choice

47 Pages Posted: 1 Jul 2008

See all articles by Nienke Oomes

Nienke Oomes

International Monetary Fund (IMF)

Christopher M. Meissner

University of California, Davis

Date Written: May 2008

Abstract

What determines the currency to which countries peg or anchor their exchange rate? Data for over 100 countries between 1980 and 1998 reveal that trade network externalities are a key determinant. This implies that anchor currency choice may well be suboptimal in that certain currencies, e.g., the U.S. dollar, could be oversubscribed. It also implies that changes in anchor choices by a small number of countries can have large and rapid effects on the international monetary system. Other factors found to be related to anchor choice include the symmetry of output shocks and the currency denomination of liabilities.

Keywords: Working Paper

Suggested Citation

Oomes, Nienke and Meissner, Christopher M., Why do Countries Peg the Way They Peg? The Determinants of Anchor Currency Choice (May 2008). IMF Working Paper No. 08/132, Available at SSRN: https://ssrn.com/abstract=1154294

Nienke Oomes (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Christopher M. Meissner

University of California, Davis ( email )

One Shields Avenue
Apt 153
Davis, CA 95616
United States

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