Essays in Honour of Charles Goodhart, Volume Two
Edited by Paul Mizen
of ‘Exchange rate regimes in theory and practice’ and ‘Is foreign exchange intervention eﬀective?’ Marcus Miller Given the number of serious currency crises in emerging-market economies during the past 7 years, it makes no sense to talk about reforming the international ﬁnancial architecture without addressing currency regimes. (Goldstein, 2002) The functioning of the global ﬁnancial system depends, to a considerable extent, on the choice of exchange rate regime by its constituent members. The Bretton Woods system of ﬁxed but adjustable exchange rate pegs against the dollar worked well ‘so long as capital ﬂows were modest, international inﬂationary and deﬂationary pressures were limited, and countries accepted an obligation to direct domestic macroeconomic policies towards achieving external balance’ (Andrew Crockett, 2001, p. 5). But, with increased capital mobility, successive oil shocks and increased policy independence in the core economies, the system collapsed; and no alternative blueprint for exchange rates arrangements has been implemented since. For the 21st century, Andrew Crockett predicts ﬂoating rates between G3 economies and increased adoption of regional currency unions by non-core economies. But for many countries that do not currently, and may not in future, join a currency union, there is an open question of how best to conduct their exchange rate policy. What are the options? In a recent monograph advocating ‘managed ﬂoating plus’ as the best option for emerging markets open to international capital ﬂows, Morris Goldstein (2002, p. 2) characterises Andrew Crockett as an adherent to the bi-polar view of exchange...
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