By late 1998, 101 countries had declared that their currencies were allowed to float against other currencies, meaning that the currency was not formally pegged to some other currency or basket of currencies. This was up from 38 ten years earlier, suggesting a significant move toward greater flexibility of exchange rates. Yet during the 1990s half a dozen countries installed currency boards, a particular strong form of exchange rate fixity; ten European currencies were eliminated in favor of a common currency, the euro; other countries were actively considering installing currency boards, or even adopting the US dollar for domestic use.
After a quarter century of floating among the major currencies, exchange rate policy is sstill a source of vexation, and the appropriate choise is by no means clear. Should a country allows its currency to float, subject perhaps to exchange market intervention from time to time? Or should it fix its currency to some other currency or currencies, and if so to which one(s)? Economists do not offer clear persuasive answers to these questions. Yet for most countries, all but the largest, with the most develoed domestic capital markets, the choise of excahnge rate policy is probably their single most important macro-economic policy decision, strongly influencing their freedom of action and effectiveness of other macro-economic policies, the evolution of their financial systems, and even the evolution of their economies.
This paper will not answer these questions, but it will suggest that the responses that have been given by many economists over the past few decades are inadequate and possibly quite poor advice to decision-makers.
Download Info
To download:
If you experience problems downloading a file, check if you have the
proper application to
view it first. Information about this may be contained
in the File-Format links below. In case of further problems read
the IDEAS help
page. Note that these files are not on the IDEAS
site. Please be patient as the files may be large.
For technical questions regarding this item, or to correct its listing, contact: (Thomas Krichel).
Related research
Keywords:
References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
Cited by: (explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)