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Exchange Rate Regimes for Development and Poverty Alleviation

In: Pro-Poor Macroeconomics

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  • Giovanni Andrea Cornia

Abstract

In the early twenty-first century the background against which policy makers have to choose an exchange rate regime is characterized by global financial integration, the dominance of capital account over current account transactions, large unhedged foreign currency liabilities, unpredictable fluctuations between the three main currencies and frequent financial crises linked to financial reforms and volatile portfolio flows. Given all of this, the mainstream advice to developing countries has been to adopt one of the two ‘corner solutions’ — that is, a hard peg or a pure float. However, whether this suggestion is good for growth and poverty alleviation is not at all clear. In this regard, this chapter reviews the evolution of the exchange rate regimes, examines the impact of alternative exchange rate regimes on growth, inflation and the balance of payments and discusses the choice of the exchange rate regime that minimizes poverty under normal conditions and crisis periods.

Suggested Citation

  • Giovanni Andrea Cornia, 2006. "Exchange Rate Regimes for Development and Poverty Alleviation," Social Policy in a Development Context, in: Giovanni Andrea Cornia (ed.), Pro-Poor Macroeconomics, chapter 4, pages 75-96, Palgrave Macmillan.
    • Handle: RePEc:pal:sopchp:978-0-230-62790-1_4
    DOI: 10.1057/9780230627901_4
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