Optimal common currency basket in East Asia

This article employs the currency invariant index due to Hovanov et al. (2004 Hovanov, N. K., Kolari, J. and Sokolov, M. 2006. Synthetic money. International Review of Economics and Finance, 16: 161–8. [Crossref] , [Google Scholar]) to construct an optimal or stable common G-3 currency basket across different groups of countries in East Asia. Calculated optimal weights show a larger weight for the US dollar but a nonnegligible role for the Japanese yen. The volatility of the optimal common G-3 currency basket is several times smaller than that of a similarly proposed common G-3 currency basket in East Asia.