Where Do We Stand On Choosing Exchange Rate Regimes in Developing and Emerging Economies?
Published: March 2002
In the midst of a lively debate about international monetary reform at the
beginning of the twenty-first century, there seemed to be a broad consensus
about exchange rate policy in developing and emerging economies; that they
should opt for one of the extremes in the form of either firm fixity or free
flexibility. Intermediate solutions were ruled out. However, dissenting voices
remained and have become more audible. This paper reviews the underlying
theoretical issues and draws on case study experience to see whether clear
conclusions emerge. The investigation shows that the choice of exchange rate
regime continues to involve a careful weighing up of opposing arguments. It may
therefore be unwise for the IMF to adopt the ‘consensus’ view. A more subtle
made-to-measure approach is needed.