东亚汇率问题(麦金农)

The East Asian Dollar Standard and Chinas Exchange Rate Ronald McKinnon Stanford University April, 2005 The Exchange Rate Debate in the 1990s Before 1997, East Asian countries, except for Japan, “softly” pegged their exchange rates to the U.S. dollar. 1997-98 Crisis: Thailand, Indonesia, Philippines, Korea, and Malaysia are attacked and devalue with bankruptcies and economic downturns spreading contagiously. The IMF blames the soft pegging for encouraging over borrowing and current account deficits leading unsustainable dollar and yen debts. It warns against any return to dollar pegging. Williamson (2000), Kawai (2002), Ogawa and Ito (2002)suggest weighting the Japanese yen more heavily in the currency baskets of the smaller East Asian economies in the face of wide fluctuations in the yen/dollar rate. The Debate In the New Millennium By 2003 into 2005, the East Asian “crisis” and non crisis economies had returned to soft dollar pegging. China and Hong Kong retained hard pegs through the crisis, and Malaysia pegged in Sept 1998 at 3.8 ringgit per dollar. Even the yen/dollar rate is more stable. But now all East Asian countries run large current account surpluses even with net inflows of FDI (China). In 2003 and 2004, only massive official interventions kept their exchange rates from appreciating. Intensified pressure from the IMF, the G-7, and the U.S. Treasury, for China to appreciate: “There should be more flexible currencies, not only for China but the whole of Asia” Rodrigo de Rato, IMF Managing Director, 29 Sept 2004 at IMF-World Bank Meetings in Washington. Table 3: East Asian Current Accounts in Comparison to the U.S., 1990-2003 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004* Percent of GDP Japan 2.0 3.0 3.0 2.7 2.1 1.4 2.3 3.0 2.6 2.5 2.1 2.8 3.2 3.7 Singapore 11.3 11.9 7.2 16.2 17.7 15.2 15.6 22.6 18.6 14.5 19.0 21.5 30.9 19.8 Taiwan 7.1 4.1 3.1 2.7 2.1 3.9 2.4 1.3 2.8 2.9 6.4 9.1 10.0 6.6 Indonesia -3.3 -2.0 -1.3 -1.6 -3.2 -3.4 -2.3 4.3 4.1 5.3 4.9 4.5 3.9 0.5 Korea -2.8 -1.3 0.3 -1.0 -1.7 -4.4 -1.7 12.7 6.0 2.7 1.9 1.3 2.0 4.2 Malaysia -8.5 -3.7 -4.5 -6.1 -9.7 -4.4 -5.9 13.2 15.9 9.4 8.3 7.6 11.1 13.7 Philippines -2.3 -1.9 -5.6 -4.6 -2.7 -4.8 -5.3 2.4 9.5 8.2 1.8 5.4 2.1 3.2 Thailand -7.7 -5.7 -5.1 -5.6 -8.1 -8.1 -2.0 12.7 10.1 7.6 5.4 6.1 5.6 4.5 China 3.3 1.4 0.0 1.3 0.2 0.9 4.1 3.3 2.1 1.9 1.5 2.9 2.1 3.4 Hong Kong 1.5 6.4 4.3 6.1 8.5 11.0 8.1 United States 0.1 -0.8 -1.2 -1.7 -1.4 -1.5 -1.5 -2.3 -3.1 -4.2 -3.9 -4.6 -4.9 -5.6 Billions of US Dollars Total East Asia 73.8 117.5 117.8 132.9 93.8 44.2 129.4 244.5 231.7 213.7 179.1 238.9 255.2 335.5 Total US 3.7 -48.0 -82.0 -117.7 -105.2 -117.2 -127.7 -204.7 -290.9 -411.5 -393.7 -480.9 -541.8 -661.3 Data source: IMF: IFS. *Preliminary from EIU data This Paper and McKinnon Book (2005) The Case for Asian Dollar Pegs East Asian economies Have sufficient fiscal and monetary control to target exchange rates, but have more difficulty targeting domestic inflation independently. Are becoming highly integrated economically with more than 50% of trade with each other. They need stable cross rates of exchange. Under developed domestic bond and forward exchange markets make currency risks more difficult to hedge. Current account surpluses need not diminish if currencies appreciate, as is likely under floating The Rise of Intra Regional Trade in East Asia, 1980-2002 (share of total exports) E x p o r t s 0 10 20 30 40 50 I n t ra Ea s t A s i a U n i t e d St a t e s R e s t o f t h e W o rl d Pe rce n t a g e 1980 1990 2002 East Asia: China, Hong Kong, Indonesia, Japan, Korea, Malaysia, Philippines, Singapore, Taiwan, and Thailand The Rise of Intra Regional Trade in East Asia, 1980-2002 (share of total imports) I m p o r t s 0 10 20 30 40 50 60 I n t ra Ea s t A s i a U n i t e d St a t e s R e s t o f t h e W o rl d Pe rc e n t a g e 1980 1990 2002 East Asia: China, Hong Kong, Indonesia, Japan, Korea, Malaysia, Philippines, Singapore, Taiwan, and Thailand Invoice Currencies in Korean Trade, 1980 2002 (percent) Exports (receipts) Imports (payments) $ DM other $ DM other 1980 96.1 1.2 2.0 0.4 0.3 93.2 3.7 1.7 0.5 0.9 1985 94.7 3.7 0.6 0.3 0.7 82.4 12.3 2.0 0.5 2.8 1990 88.0 7.8 2.1 0.5 1.7 79.1 12.7 4.1 0.9 3.4 1995 88.1 6.5 2.4 0.8 2.2 79.4 12.7 3.8 0.7 3.4 2000 84.8 5.4 1.8 0.7 7.3 80.4 12.4 1.9 0.8 4.4 2002 86.8 5.2 5.8 0.8 1.4 80.6 12.1 5.4 0.6 1.3 Source: Bank of Korea: Monthly Statistical Bulletin. Trade in services is not included. DM represents the euro starting from 2000. Figure 1: East Asian Exchange Rate Pegs against the Dollar, 1980:01-2004:04 (Monthly) Taiwan Dollar Singapore Dollar Hong Kong Dollar Chinese Yuan 0 100 200 300 400 500 600 700 800 1980 .01 1983 .01 1986 .01 1989 .01 1992 .01 1995 .01 1998 .01 2001 .01 2004 .01 0 100 200 300 400 500 600 700 800 1980.01 1983.01 1986.01 1989.01 1992.01 1995.01 1998.01 2001.01 2004.01 0 100 200 300 400 500 600 700 800 1980 .01 1983 .01 1986 .01 1989 .01 1992 .01 1995 .01 1998 .01 2001 .01 2004 .01 0 100 200 300 400 500 600 700 800 1980 .01 1983 .01 1986 .01 1989 .01 1992 1995 1998 2001 .01 2004 .01 Figure 1 (Continued) Crisis Economies, 1980:01- 2004:04 (Monthly) Thai Baht Philippine Peso Malaysian Ringgit Korean Won Indonesian Rupiah 0 500 1000 1500 2000 2500 1980 .01 1983 .01 1986 .01 1989 .01 1992 .01 1995 .01 1998 .01 2001 .01 2004 .01 0 100 200 300 400 500 600 700 800 1980 .01 1983 .01 1986 .01 1989 .01 1992 .01 1995 .01 1998 .01 2001 .01 2004 .01 0 100 200 300 400 500 600 700 800 1980 .01 1983 .01 1986 .01 1989 .01 1992 .01 1995 .01 1998 .01 2001 .01 2004 .01 0 100 200 300 400 500 600 700 800 1980 .01 1983 .01 1986 .01 1989 .01 1992 .01 1995 .01 1998 .01 2001 .01 2004 .01 0 100 200 300 400 500 600 700 800 1980 .01 1983 .01 1986 .01 1989 .01 1992 .01 1995 .01 1998 .01 2001 .01 2004 .01 Frankel and Wei Regression (1994) tr a n cMa r k S w i s s fancY e n S w i s s f rs f r a n cD o l l a r S w i s s s f r a n cu r r e n c y S w iE a s t A s i a n c ueee e ttt t 4321 Problem: For any one East Asian currency other than Japan, how do you measure the weight of each major currency the dollar, yen, or euro in its currency “basket”? Answer: Choose an outside currency as numeraire, e.g., the Swiss Franc, to measure all exchange rates in the above regression. Figure 2: Dollars Weight in East Asian Currency Baskets, 130-Trading-Day Rolling Regressions, 1990:01- 2004:05 (Daily) Taiwan Dollar Singapore Dollar Hong Kong Dollar Chinese Yuan 0.0 0.2 0.4 0.6 0.8 1.0 1.2 1.4 1.6 01.01.1990 01.01.1993 01.01.1996 01.01.1999 01.01.2002 0.0 0.2 0.4 0.6 0.8 1.0 1.2 1.4 1.6 01.01.1990 01.01.1993 01.01.1996 01.01.1999 01.01.2002 0.0 0.2 0.4 0.6 0.8 1.0 1.2 1.4 1.6 01.01.1990 01.01.1993 01.01.1996 01.01.1999 01.01.2002 0.0 0.2 0.4 0.6 0.8 1.0 1.2 1.4 1.6 01.01.1990 01.01.1993 01.01.1996 01.01.1999 01.01.2002 Thai Baht Philippine Peso Malaysian Ringgit Korean Won Indonesian Rupiah 0.0 0.2 0.4 0.6 0.8 1.0 1.2 1.4 1.6 01.01.1990 01.01.1993 01.01.1996 01.01.1999 01.01.2002 0.0 0.2 0.4 0.6 0.8 1.0 1.2 1.4 1.6 01. 01. 1990 01. 01. 1993 01. 01. 1996 01. 01. 1999 01. 01. 2002 0.0 0.2 0.4 0.6 0.8 1.0 1.2 1.4 1.6 01.01.1990 01.01.1993 01.01.1996 01.01.1999 01.01.2002 0.0 0.2 0.4 0.6 0.8 1.0 1.2 1.4 1.6 01.01.1990 01.01.1993 01.01.1996 01.01.1999 01.01.2002 0.0 0.2 0.4 0.6 0.8 1.0 1.2 1.4 1.6 01.01.1990 01.01.1993 01.01.1996 01.01.1999 01.01.2002 Figure 2: Dollars Weight in East Asian Currency Baskets, 130-Trading-Day Rolling Regressions, 1990:01- 2004:05 (Daily) Table 1: Standard Deviations of Daily Exchange Rate Fluctuations against the Dollar Pre-crisis Crisis Post-crisis 2003/2004 Chinese Yuan 0.03 0.01 0.00 0.00 Hong Kong Dollar 0.02 0.03 0.03 0.05 Indonesian Rupiah 0.17 4.43 1.11 0.43 Korean Won 0.22 2.35 0.43 0.43 Malaysian Ringgit 0.25 1.53 0.00 0.00 Philippine Peso 0.37 1.31 0.51 0.25 Singapore Dollar 0.20 0.75 0.27 0.29 New Taiwan Dollar 0.19 0.50 0.21 0.20 Thai Baht 0.21 1.55 0.38 0.27 Japanese Yen 0.67 1.00 0.64 0.57 Euro (Deutsche Mark) 0.60 0.58 0.64 0.64 Swiss Franc 0.69 0.66 0.66 0.70 Data source: Datastream. Percent changes. Pre-crisis = 02/01/94 05/30/97, crisis = 06/01/97 12/31/98, post-crisis = 01/01/99 05/17/04, 2003/2004 = 01/01/03 05/17/04. Dollar dominance in East Asia Original sin Underdeveloped domestic bond market or in some cases developed domestic bond market (India) Debtors cannot borrow in own currency nor can they hedge their net dollar indebtedness. Currency mismatch and maturity mismatch. Eichengreen and Hausmann 1999, Hausmann and Panizza 2003 Conflicted virtue Creditors cannot lend in their own currencies nor can they hedge their net dollar assets. Currency mismatch but no necessary maturity mismatch McKinnon and Schnabl 2004, McKinnon 2005 Fun with Translation 名词翻译 Conflicted virtue High-saving dilemma: 高储蓄两难 Original sin: 原罪 (Christian) Sin from the past life: 前世之罪 (Buddhist) Conflicted virtue High-saving countries run current account surpluses but lend in dollars. However, as their stocks of dollar claims cumulate: Foreigners start complaining that the countrys ongoing flow of trade surpluses is unfair and the result of having an undervalued currency. Domestic private holders of dollar assets worry more about a self-sustaining run into the domestic currency forcing an appreciation. Domestic interest rates are bid down, perhaps to zero Conflicted virtue: To appreciate or not to appreciate As runs into the domestic currency out of dollars begin, the government is “conflicted” because (repetitive) appreciation could set in train serious deflation ending with a zero interest liquidity trap (Japan) But failure to appreciate could elicit trade sanctions from foreigners. A “free” float becomes an indefinite upward spiral The story of Japan (I) There were repetitive appreciations of yen from 1970s to mid-90s under mercantile pressure from trade partnersparticularly the United States. But trade surpluses continued to cumulate. Reason: Exchange rate changes only determine domestic inflation or deflation, not trade balance. The simple-minded elasticities approach (Marshall-Lerner condition) to determining the trade balance is invalid in financially open economies. McKinnon and Ohno 1997 The story of Japan (II) Negative risk premium Goyal and McKinnon 2003 To maintain portfolio balance, Japanese financial institutions demand a higher return on dollars (which is riskier given the volatility in exchange rate). But the interest rate on dollar assets is determined internationally. Thus the interest rate on yen assets was forced down leading to a zero interest liquidity trap by the end of 1996. Is China like Japan? China has a big advantage over Japan: The RMB exchange rate has been, and can be, more credibly maintained at the current level without disturbing domestic price level. And a disadvantage: Chinas net FDI inflows are much larger than Japans. FDI can be seen as illiquid liabilities but adds to liquid dollar claims. Figure 7: International Investment Position of Japan (Billions of Dollars) -20 0 0 200 400 600 800 1000 1200 1400 1600 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 bi ll io ns of dol la rs to tal p u b lic p rivate Source: Japan: Ministry of Finance. The Yen-Dollar Nominal Exchange Rate, 1970 - 2005 Source: International Financial Statistics, IMF 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 L o g S c a l e L o n g - r u n t r e n d a p p r e c i a t i o n o f M c K i n n o n a n d O h n o ( 1 9 9 7 ) N o a p p a re nt t re nd from t he m i d 9 0s t o 2 005 100 200 300 400 Implications for Interest Rates: The Negative Risk Premium To sustain the interest differential between yen and dollar assets, consider an augmented interest parity relationship: From the 70s to the mid 90s, the interest differential, i i*, was driven primarily by the negative term from the erratically appreciating yen, which peaked in April 1995. Since the mid-90s, 0 and the interest differential has been driven primarily by the term, which is also negative (Goyal and McKinnon 2003, McKinnon 2005). esii * i s Japanese nominal interest rate. Yen price of one dollar Risk premium on yen assets i* U.S. nominal interest rate Expected depreciation of the yen es es es Figure 8: Interest Rates in the US and Japan, Long- Term: 10-Year US Treasuries and JGBs, 1980-2004 0 2 4 6 8 10 12 14 16 1 9 8 0 M 1 1 9 8 3 M 1 1 9 8 6 M 1 1 9 8 9 M 1 1 9 9 2 M 1 1 9 9 5 M 1 1 9 9 8 M 1 2 0 0 1 M 1 2 0 0 4 M 1 p ercent per ann u m Jap an US Figure 8: Interest Rates in the US and Japan, Short- Term: Money Market Rates, 1980-2004 0 2 4 6 8 10 12 14 16 18 20 1 9 8 0 M 1 1 9 8 3 M 1 1 9 8 6 M 1 1 9 8 9 M 1 1 9 9 2 M 1 1 9 9 5 M 1 1 9 9 8 M 1 2 0 0 1 M 1 2 0 0 4 M 1 p ercent per ann u m Jap an (call m o n ey r ate) US ( f ederal f u n d s rate) Interest Differentials, Portfolio Balance, and the Impossibility Free Floating As dollar claims accumulate, a sufficiently large interest differential to induce private portfolio holdings of dollars becomes unsustainableas in Japan when yen interest rates approach zero. The problem worsens when US interest rates are unusually low, as in 2003 and 2004. Then, increasing official foreign exchange reserves become the dominant mode of financing Asian current account surpluses. And the private unwillingness to hold dollars makes a free float impossible. Table 4: East Asian Current Accounts (CA) and Changes in Foreign Reserves (RC): 1997 - 2003 Billions of Dollars 1997 1998 1999 2000 2001 2002 2003 2004* Japan CA 97 119 115 120 88 112 136 172 RC 1 -5 74 70 41 64 201 171 Singapore CA 15 19 15 13 16 19 28 20 RC -6 4 2 3 -5 7 14 8 Taiwan CA 7 3 8 9 18 26 29 20 RC -5 7 16 1 15 39 45 35 Indonesia CA -5 4 6 8 7 8 8 1 RC -2 6 4 2 -1 4 4 0 Korea CA -8 40 24 12 8 6 12 28 RC -14 32 22 22 7 18 34 44 Malaysia CA -6 10 13 8 7 7 11 16 RC -6 5 5 -1 1 4 10 12 Philippines CA -4 2 7 6 1 4 2 3 RC -3 2 4 0 0 0 0 -1 Thailand CA -3 14 12 9 6 8 8 7 RC -12 3 5 -2 0 6 3 8 China CA 37 31 21 21 17 35 31 55 RC 35 5 10 11 47 74 117 181 HK SAR CA n.a. 3 10 7 10 14 17 13 RC 29 -3 7 11 4 1 6 5 East Asia CA 133 241 230 217 182 248 255 335 RC 19 56 148 117 109 216 434 463 Data source: IMF: IFS. *Preliminary from EIU data Figure 10: US and cumulative East Asian Current Accounts (Billions of US Dollars) Data source: IMF: IFS. - 1 0 0 0 - 8 0 0 - 6 0 0 - 4 0 0 - 2 0 0 0 200 400 600 1990 1992 1994 1996 1998 2000 2002 2 0 0 4 E I U B i l l i o n U S D o l l a r s T o t a l E a s t A s i a U n i t e d S t a t e s “ Revived Bretton Woods” EA Exchange Rates deliberately undervalued to generate a trade surplus. Exports are desired to promote “development”, particularly in manufacturing. Asian governments are willing to invest in very low yield US Treasuries, and to accept American FDI with high profit repatriation. US gets finance for its fiscal deficits The ongoing US current-account deficit need not be corrected in the near future The Dollar Standard and East Asias Trade Surplus: The DFG Interpretation* * Dooley, Folkerts-Landau, and Garber (2003)-(2004). The Dollar Standard and East Asias Trade Surplus: The MCK Interpretation, I The current regime: With the dollar as international money, the efficiency of world trade and payments increases. With a stable U.S. price level, peripheral countries will peg to the dollar to anchor their own price levels particularly East Asian countries highly integrated in trade. They converge to relative purchasing power parity (PPP) if nominal exchange rates remain fixed: no exchange rate “undervaluation” The Dollar Standard and East Asias Trade Surplus: The MCK Interpretation, II Proposed East Asian exchange rate changes: discrete appreciation or floating No predictable effect on net trade balances Any appreciation will slow economic growth and lead to deflation Loss of credibility to maintain the exchange rate at any level Possibility of an indefinite upward spiral in the dollar value of East Asian currencies The Dollar Standard and the United States: MCK Interpretation The unlimited US credit line with the rest of the world softens borrowing constraints on US households, and the federal government. Federal fiscal deficits are financed by selling dollar bonds to foreigners at low interest rates. Large current account deficits are sustainable “indefinitely” because of the central international monetary position of the United States. The upshot of easy foreign borrowing is: falling US saving, both government and private, for more than 20 years. deindustrialization, loss of jobs in manufacturing, leading to protectionist pressure. US Current Account and Manufacturing Sector Trade Balance: 1965 - 2004 -6 -5 -4 -3 -2 -1 0 1 2 1965 1968 1971 1974 1977 1980 1983 1986 1989 1992 1995 1998 2001 20043Q C A B a l a n ce M a n u f a ct u r i n g T r a d e B a l a n ce So u rc e : Bu re a u o f Ec o n o m i c An a l y s i s (Percentage of GDP) Projection of Labor Growth in Manufacturing under Balanced Manufacturing Trade: 1965 - 2004 0 . 0 0 5 . 0 0 1 0 . 0 0 1 5 . 0 0 2 0 . 0 0 2 5 . 0 0 1965 1968 1971 1974 1977 1980 1983 1986 1989 1992 1995 1998 2001 2004 (% ) S h a r e o f M a n u f a ct u r i n g E m p l o y m e n t P r o j e ct e d S h a r e o f M a n u f a ct u r i n g E m p l o y m e n t u n d e r B a l a n ce d M a n u f a ct u r i n g T r a d e So u rc e : Bu re a u o f Ec o n o m i c An a l y s i s , Su rv e y o f C u rre n t Bu s i n e s s (Share of US Labor Force) American Fiscal and Trade Deficits The Fed creates the definitive international money. An attack on the dollar is unlikely because US debts are denominated in its own currency. But heavy US foreign borrowing is transferred in real terms through large American trade deficits, mainly in manufactures. The American concern with de-industrialization, i.e., unduly rapid job losses in manufacturing, should be linked to Federal fiscal deficits and low American personal saving. The Exchange Rate and International Adjustment Two Contradictory Views 1. A flexible exchange rate is useful for adjusting the net trade balance to net international capital flows 2. A fixed exchange rate can anchor the domestic price level by inducing money wage growth that balances differential productivity growth across countries This paper pursues 2. on the presumption that 1. is false and misleading for open economies McKinnon and Ohno (1997) Chs 6 and 7 Balancing International Competitiveness: The Scandinavian Model (SM) Wage adjustment and relative Purchasing Power Parity (PPP) under a fixed exchange rate Sweden, 1948 to 1971 5.17 kronor per dollar Japan, 1949 to 1971 360 yen per dollar China, 1994 to 2005 8.28 yuan per dollar Scandinavian Model Assumptions: Inflation in tradables sector converges to world inflation plus any exchange rate depreciation (relative PPP) Wage bargaining is initiated in the high- productivity-growth tradables sector (manufactures) subject to the exchange rate constraint Labor “solidarity”: wage growth in other sectors with lower productivity growth follows that in tradables Result: International competitiveness between fast- and slow- growing economies is automatically balanced by differential growth in wages. SM Definitions = world market prices for tradables = exchange rate = aggregate price level = domestic price level for tradables and nontradables, respectively = wage rate in the tradable and nontradable sector, respectively = labor productivity in the tradable and nontradable sector, respectively wp NT pp , NT ww , NT qq , e p SM Assumptions NT NT NTw NNN TN TTT wT qq ppp qqep qwp ww qpw epp )1( Relative PPP Wage bargaining in tradables: constant factor shares Labor solidarity Nontradables price based on labor cost General price index ( CPI) with constant weights Higher productivity growth in tradables SM: General Supply-Side Inflation No independent demand-side national monetary policy Tradable price increases are transmitted directly into domestic inflation through the foreign exchanges Additional general price inflation is p