Narrow Results

This paper investigates the potential portfolio diversification between Bitcoin, bonds, equities, and the US dollar. We make use of two approaches for constructing the portfolio. The first is the standard minimum variance approach, and the alternative is based on combining risk and return when the portfolio is constructed. The portfolio based on the minimum variance approach does not result in increasing the return per unit of risk compared to the corresponding value for the best single asset, in this case, Bitcoin. However, the portfolio based on the approach that combines risk and return in the optimization problem does show a return per unit risk higher than the corresponding value for any of the four assets. Thus, the portfolio diversification benefit with respect to these four assets, in terms of return per unit risk, exists only if the portfolio is constructed via the new approach.

Recent empirical studies show that the Chinese currency renminbi is either becoming or has become a dominant reference currency in Asia. However, the high correlation between the US dollar and renminbi movements hampers the identification of their individual effects on the Asian currencies. In particular, the application of Frankel–Wei regressions to determine the weights of the US dollar and the (unorthogonalized) renminbi in the implicit currency baskets could suffer from endogeneity problems that produce an upward bias in renminbi's estimated weight. This paper reviews the evidence by applying country-specific Vector Autoregression (VAR) models to daily exchange rate data from nine Asian economies namely, Hong Kong, Indonesia, India, Korea, Malaysia, the Philippines, Singapore, Thailand, and Taiwan. The VAR methodology allows for mutual interaction of the exchange rate variables, thereby circumventing the simultaneity bias problem. To overcome the identification problem, we study the relationship between Asian currencies and the US dollar (renminbi) in terms of their bilateral rates against the renminbi (US dollar). All bilateral exchange rates are standardized so that the impulse responses generated are in terms of the number of standard deviations of each series, hence facilitating comparisons across the two sets of models. Generalized impulse response analysis reveals that the US dollar has a significant influence on Asian currencies before the global financial crisis but its impact has weakened post-crisis. By contrast, there is clear evidence that the role of the renminbi in Asian exchange rate determination has increased after the global financial crisis, exerting either greater or a similar impact as the US dollar. Nonetheless, our findings do not support the claim that a de facto "renminbi bloc" has emerged in the region.

This study explores the long- and short-run movement between oil prices and the real exchange rates of two large oil-exporting countries – Canada and Norway. Cointegration and serial correlation common features tests are jointly used to identify the long-term common trend and short-term common cycles. Our test results find that oil prices and the real exchange rates of the Canadian Dollar and the Norwegian Krone have two shared trends and one shared cycle. The trend–cycle decomposition shows a great deal of positive comovement among the trend and cyclical components. The two currencies show economic dynamics very similar to crude oil prices. They do not exhibit any qualitative differences in the trajectory of the trend and cycles when controlling for different crude oil prices. Our results indicate that oil price fluctuations play significant role in explaining the exchange rate movements of oil-exporting countries.

After the global financial tsunami of 2008 and economic recession of major developed economies in 2009, the growth engines of Asia, especially China and India, have recovered strongly. Mounting sovereign debts and national budget deficits in the west continued, however, to threaten the fragile global growth. Trans-Pacific trade imbalances, the role of the greenback as the principal reserve currency in the wake of a weakening Euro continued to draw attention and concern. Over the longer term, however, the focus of Asian policy makers should be inclusive growth and sustainable advancement and not economic growth per se. Rather, quality of life with attention to environmental protection and equitable progress through balanced regional development should carry more and more weight. Asian societies must ensure an adequate non-welfare type comprehensive social safety net and capacity building. In terms of evolving regional institutional architecture, the APEC-PECC nexus would continue to serve as the accepted, relevant and useful platform for pushing further the agenda for greater globalization in trade and deliberation on various reforms. At least half of the APEC-PECC members are also member of the G-20 Group. The former should reflect the voices and aspirations of those economies which are not members of G-20. The Global Governance Group which was initiated by Singapore in 2009 will help to strengthen governance for governments globally, especially for the smaller economies.