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Exchange Rate Regimes and East Asia

SAN FRANCISCO - Three elements combined to produce financial crisis in East Asian economies: stagnation in Japan, the pegging of exchange rates to the U.S. dollar by national central banks, and the existence and policies of the IMF.

During the 1980's, the Bank of Japan fed the bubble in stock and land prices by permitting the quantity of money in Japan to grow rapidly --13% per year in 1990. The Bank of Japan then burst the bubble by stepping hard on the monetary brakes. The quantity of money declined a trifle in 1992 and from then to mid-1998 grew by only 2.6% per year.