Working Papers - details - WEF0009
WEF0009
Why Do Countries Peg the Way They Peg? The Determinants of Anchor Currency Choice
Christopher Meissner, Nienke Oomes
March 2006
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Abstract
Conditional on choosing a pegged exchange rate regime, what determines the currency to which countries peg or "anchor" their exchange rate? This paper aims to answer this question using a panel multinomial logit framework, covering more than 100 countries for the period 1980-1998. We find that trade network externalalities are a key determinant of anchor currencies in the international monetary system. Other factors found to be related to anchor currency choice include the symmetry of output co-movement, the currency denomination of debt, and legal or colonial origins.
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