Currencies of greater interest for central Asian economies: an analysis of exchange market pressure amid global and regional interdependence

Devendra Kumar Jain (), Naqeeb Ur-Rehman (), Omonjon Ganiev () and Kapil Arora ()
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Devendra Kumar Jain: Flame University
Naqeeb Ur-Rehman: Westminster International University
Omonjon Ganiev: Westminster International University in Tashkent
Kapil Arora: Alliance University

Financial Innovation, 2023, vol. 9, issue 1, 1-18

Abstract: Abstract Central Asian Economies (CAEs) have diverse exchange rate policies. They have recorded higher volatility in the foreign exchange market since inception. High volatility of the transition era has drifted these economies towards partial dollarization. Monetary authorities in CAEs, (already have a challenge of maintaining monetary policy autonomy) have a gigantic task of price stability and stopping the spread of dollarization. This study is directed towards assessing the drivers and the determinants of foreign exchange market pressure in CAEs. The results, based on panel data analysis and the System GMM model, have provided useful insights about the exchange market pressure determinants particularly USD, Euro, Ruble, and Renminbi. The results show that China and Russia exchange market pressure has a negative effect on the exchange market pressure of CAEs. While the dollar index shows a positive impact on the exchange market pressure of CAEs. Overall, the findings imply that China and Russia currency appreciation results in a trade deficit across CAEs. The policy implication suggests that the floating exchange rate regime (inflation targeting regime) is not in favor of CAEs, and they must use managed-float to reduce their trade deficits.

Keywords: Exchange market pressures; Central Asian economies; Exchange markets; Financial market Interdependence; Transition economies (search for similar items in EconPapers)
JEL-codes: E52 F42 G01 G15 G18 (search for similar items in EconPapers)
Date: 2023
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DOI: 10.1186/s40854-022-00417-7

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