Exchange Rate Policy in Emerging Economies Facing Capital Reversals:Should Floating Be Clean or Dirty?


Graham Bird

Published: December 2019


In the period since the global economic and financial crisis in 2008/09, emerging economies have encountered both surges and reversals of international capital.Rising interest rates and economic growth in the USA may in the future lead to them facing further relatively sharp capital reversals.To what extent should they allow such capital reversals to affect their exchange rates; should they opt for free (clean) floating or managed (dirty) floating? They have not all opted for the same exchange rate regime.In an era of high international capital mobility, exchange rate policy in emerging economies becomes more complicated than it used to be, and depends on a wide range of factors upon which there is considerable uncertainty. This article provides a systematic review of the issues involved.



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