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.
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