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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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    References listed on IDEAS

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    1. Tamim Bayoumi and Barry Eichengreen., 1994. "The Stability of the Gold Standard and the Evolution of the International Monetary System," Center for International and Development Economics Research (CIDER) Working Papers C94-040, University of California at Berkeley.
    2. Stein, Ernesto H. & Streb, Jorge M., 1998. "Political stabilization cycles in high-inflation economies," Journal of Development Economics, Elsevier, vol. 56(1), pages 159-180, June.
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    4. Frankel, Jeffrey A. & Rose, Andrew K., 1996. "A panel project on purchasing power parity: Mean reversion within and between countries," Journal of International Economics, Elsevier, vol. 40(1-2), pages 209-224, February.
    5. Tamim Bayoumi and Barry Eichengreen., 1993. "One Money or Many? On Analyzing the Prospects for Monetary Unification in Various Parts of the World," Center for International and Development Economics Research (CIDER) Working Papers C93-030, University of California at Berkeley.
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    8. F. Gulcin Ozkan & Alan Sutherland, "undated". "A Model of the ERM Crisis," EPRU Working Paper Series 93-09, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
    9. Barry Eichengreen and Jurgen von Hagen., 1995. "Fiscal Policy and Monetary Union: Federalism, Fiscal Restrictions and the No-Bailout Rule," Center for International and Development Economics Research (CIDER) Working Papers C95-056, University of California at Berkeley.
    10. Obstfeld, Maurice, 1986. "Rational and Self-fulfilling Balance-of-Payments Crises," American Economic Review, American Economic Association, vol. 76(1), pages 72-81, March.
    11. Obstfeld, Maurice & Rogoff, Kenneth, 1995. "The intertemporal approach to the current account," Handbook of International Economics, in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 34, pages 1731-1799, Elsevier.
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