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What Do Currency Crises Tell Us About the Future of the International Monetary System?

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  • Eichengreen, Barry
  • Wyplosz, Charles

Abstract

In this paper we review what is known about exchange rate crises. We then draw out lessons for the choice of exchange rate regime. We show the dilemmas of exchange rate management are particularly acute for small, open developing economies. Freely floating exchange rates are not tolerable for such countries because their markets are thin, their exchange rates would be volatile, and their trade and production would be severely disrupted. But fixed exchange rates are not viable either because they would be highly susceptible to destabilizing speculative attack. Larger neighbors, for whom international transactions are less important, will have little reason to contemplate stabilizing their exchange rates against one another. This scenario points to eventual emergence of a world organized around three currency zones centered on the United States, Western Europe and Japan.

Suggested Citation

  • Eichengreen, Barry & Wyplosz, Charles, 1995. "What Do Currency Crises Tell Us About the Future of the International Monetary System?," Center for International and Development Economics Research (CIDER) Working Papers 233418, University of California-Berkeley, Department of Economics.
  • Handle: RePEc:ags:ucbewp:233418
    DOI: 10.22004/ag.econ.233418
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    Cited by:

    1. Frankel, J-A & Rose, A-K, 1996. "Economic Structure and the Decision to Adopt a Common Currency," Papers 611, Stockholm - International Economic Studies.
    2. Frankel, Jeffrey A, 1996. "Recent Exchange-Rate Experience and Proposals for Reform," American Economic Review, American Economic Association, vol. 86(2), pages 153-158, May.
    3. Obstfeld, Maurice, 1996. "Intertemporal price speculation and the optimal current-account deficit: reply and clarification," Journal of International Money and Finance, Elsevier, vol. 15(1), pages 141-147, February.
    4. Monadjemi , Mehdi & Lodewijks , John, 2009. "Indicators of Financial Instability," Journal of Money and Economy, Monetary and Banking Research Institute, Central Bank of the Islamic Republic of Iran, vol. 5(2), pages 33-46, April.

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