Why do countries peg the way they peg? The determinants of anchor currency choice

What determines the currency to which countries peg or "anchor" their exchange rate? Data for over 100 countries between 1980 and 1998 reveal trade network externalities are a key determinant of anchor currency choice. This implies currency anchoring strategies could be sub-optimal. Hence, certain currencies could be oversubscribed as anchors, and changes in anchor choices of a small number of countries can have a large and rapid impact on the international monetary system. Other factors related to anchor choice include the symmetry of output co-movements and the currency denomination of liabilities.