We build an optimizing framework to analyze a class of economies that adopt an ECU-type basket currency while in transition to increased flexibility of the exchange rate regime. Instead of conventional basket pegging, such an economy uses an ECU-type currency index as a benchmark for monitoring...

The choice of an appropriate exchange rate regime during economic transition is investigated through the case of China's 1994 reform programme. Within a game-theoretic framework, the paper compares welfare under alternative policy regimes. While not upsetting government welfare, China's exchange...