On the Policy of Reserving Different Currencies after the Asian Crisis

Abstract

How do financial managers of East Asian firms escape from the impacts of a sudden change in the exchange rate between dollar and yen such as it happened in the Asian currency crisis in July 1997? This article is aimed to discuss the policy of reserving different currencies that financial managers of East Asian firms should take after the Asian currency crisis, in order to counterbalance the effects of erratic changes of the exchange rate between dollar and yen. Based on the analysis of the structure of Japan’s foreign trade with East Asian countries and the impact of the dollar/yen rate, the author proposes that each country of East Asia should have its own currency basket containing a different proportion of yen, dollar, and euro.