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
Language
English
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