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Issues on the choice of Exchange Rate Regimes and Currency Boards – An Analytical Survey

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  • Moheeput, Ashwin

    (Department of Economics, University of Warwick)

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    Abstract

    Currency boards have often been at the heart of monetary reforms proposed by the International Monetary Fund (IMF) : they have been instrumental either as a short term crisis management strategy that successfully restores financial order for many countries seeking stabilization in the aftermath of prolonged economic crisis or as a way of importing monetary credibility as part of a medium / long term strategy for conducting monetary policy. As backbone of a credible exchange-rate based stabilisation programme, they have also been the linchpin of several heterodox or orthodox programmes aimed at mitigating hyperinflation. This paper attempts to synthetize our thinking about currency boards by reviewing their strengths and weaknesses and endeavours to seek real world examples to rationalise their applicability as opposed to alternative exchange rate regimes. Architects of international financial stability at the IMF or at central banks often ponder about the prerequisites for such programme to work well. These are also reviewed using appropriate economic theory where necessary. Finally, this paper sheds light on the best exchange rate regime that may be adopted in the intermediate term by those countries wishing to adopt a currency board, not as a quick fix solution to end an economic chaos but rather, as integral part of a long term monetary strategy.

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    File URL: http://www2.warwick.ac.uk/fac/soc/economics/research/workingpapers/2008/twerp_855.pdf
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    Bibliographic Info

    Paper provided by University of Warwick, Department of Economics in its series The Warwick Economics Research Paper Series (TWERPS) with number 855.

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    Length: 41 pages
    Date of creation: 2008
    Date of revision:
    Handle: RePEc:wrk:warwec:855

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    Keywords: Currency Boards ; IMF ; Crisis Management ; Monetary Credibility ; Heterodox / Orthodox Programs ; Hyperinflation ; Exchange Rate Regimes;

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    1. Stanley Fischer, 2001. "Exchange Rate Regimes: Is the Bipolar View Correct?," Journal of Economic Perspectives, American Economic Association, vol. 15(2), pages 3-24, Spring.
    2. Bela Balassa, 1964. "The Purchasing-Power Parity Doctrine: A Reappraisal," Journal of Political Economy, University of Chicago Press, vol. 72, pages 584.
    3. Anne Marie Gulde, 1999. "The Role of the Currency Board in Bulgaria's Stabilization," IMF Policy Discussion Papers 99/3, International Monetary Fund.
    4. Charles Enoch & Tomás J. T. Baliño, 1997. "Currency Board Arrangements," IMF Occasional Papers 151, International Monetary Fund.
    5. Andres Velasco & Roberto Chang, 2000. "Exchange-Rate Policy for Developing Countries," American Economic Review, American Economic Association, vol. 90(2), pages 71-75, May.
    6. Atish R. Ghosh, 1998. "Currency Boards," IMF Working Papers 98/8, International Monetary Fund.
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    Cited by:
    1. Jayjit Roy, 2014. "On the robustness of the trade-inducing effects of trade agreements and currency unions," Empirical Economics, Springer, vol. 47(1), pages 253-304, August.

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