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India's policy stance on reserves and the currency

  • Ila Patnaik

    (Indian Council for Research on International Economic Relations)

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    Over the last decade, India engaged in substantial liberalisation on the current account and the capital account. At the same time, a fully articulated policy framework defining the currency regime is not known in the public domain. In this paper, we seek to characterise then ature of the currency regime, in the period after the Asian crisis. This is closely linked to better understanding the phenomenon of reserves accumulation of the recent years. Our results suggest that the main focus of the currency regime has been to deliver a low volatility of the nominal exchange rate. The rupee appears to be a de facto peg to the USD. In the last one year, reserves accumulation cannot be explained by insurance motivations; it seems to be a passive side effect of maintaining the currency regime

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    File URL: http://www.icrier.org/pdf/wp108.pdf
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    Paper provided by Indian Council for Research on International Economic Relations, New Delhi, India in its series Indian Council for Research on International Economic Relations, New Delhi Working Papers with number 108.

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    Length: 33 pages
    Date of creation: Sep 2003
    Date of revision:
    Handle: RePEc:ind:icrier:108
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    1. Maurice Obstfeld & Kenneth Rogoff, 1995. "The Mirage of Fixed Exchange Rates," NBER Working Papers 5191, National Bureau of Economic Research, Inc.
    2. Carmen M. Reinhart & Kenneth S. Rogoff, 2004. "The Modern History of Exchange Rate Arrangements: A Reinterpretation," The Quarterly Journal of Economics, MIT Press, vol. 119(1), pages 1-48, February.
    3. Andrew W. Lo & A. Craig MacKinlay, 1987. "Stock Market Prices Do Not Follow Random Walks: Evidence From a Simple Specification Test," NBER Working Papers 2168, National Bureau of Economic Research, Inc.
    4. Joshua Aizenman & Nancy P. Marion, 2002. "The high demand for international reserves in the Far East: what's going on?," Proceedings, Federal Reserve Bank of San Francisco, issue Sep.
    5. Bayoumi, Tamim & Eichengreen, Barry, 1998. "Exchange rate volatility and intervention: implications of the theory of optimum currency areas," Journal of International Economics, Elsevier, vol. 45(2), pages 191-209, August.
    6. Reinhart, Carmen & Calvo, Guillermo, 2002. "Fear of floating," MPRA Paper 14000, University Library of Munich, Germany.
    7. Taimur Baig, 2001. "Characterizing Exchange Rate Regimes in Post-Crisis East Asia," IMF Working Papers 01/152, International Monetary Fund.
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