Title

Currency substitution and speculative attacks on a currency board system

Document Type

Journal article

Source Publication

Journal of International Money and Finance

Publication Date

2-1-2002

Volume

21

Issue

1

First Page

53

Last Page

78

Keywords

Currency board, Currency substitution, Hong Kong, Markov-switching model, Speculative attack

Abstract

A currency board arrangement (CBA) is supposed to be robust against attacks. Currency substitution complicates life, with controversial implications for floating versus fixed exchange rate regimes. After reporting evidence of currency substitution in Hong Kong, a monetary model incorporating currency substitution is used to estimate the shadow exchange rate and the probability of speculative attack on the Hong Kong dollar. A decomposition analysis of a Markov-switching model indicates that the no-attack regime was the most durable one. This implies that Hong Kong's quasi CBA was relatively robust against both speculative attacks and currency substitution.

DOI

10.1016/S0261-5606(01)00015-8

Print ISSN

02615606

E-ISSN

18730639

Publisher Statement

Copyright © 2002 Elsevier Science Ltd

Access to external full text or publisher's version may require subscription.

Full-text Version

Publisher’s Version

Recommended Citation

Tsang, S.-k., & Ma, Y. (2002). Currency substitution and speculative attacks on a currency board system. Journal of International Money and Finance, 21(1), 53-78. doi: 10.1016/S0261-5606(01)00015-8