Regional Currency Areas in Financial Globalization
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Regional Currency Areas in Financial Globalization

Edited by Patrick Artus, André Cartapanis and Florence Legros

This book is an up-to-date, authoritative and comprehensive analysis of the key issues and challenges facing regional currency area projects in the context of financial globalization. The authors focus on several central issues that emerged during the experiences of the 1990s and 2000s: exchange rate regimes and optimal currency area theory; exchange rate regimes in emerging countries, international capital markets and regional currency areas; EMU and the euro; exchange rate regimes in Central and Eastern Europe, Asia and Latin America; dollarization and the coordination of macroeconomic policies in the presence of regional currency areas.
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Chapter 5: Financial Vulnerability and Exchange Rate Regimes in Latin American and Asian Emerging Countries: Towards New Criteria?

André Cartapanis and Vincent Dropsy


André Cartapanis and Vincent Dropsy INTRODUCTION Many countries in Latin America and East Asia liberalized their financial markets in the early 1990s and suffered severe currency crises later in that decade. As a result of these violent speculative attacks, most of these emerging nations appeared to have de jure selected ‘corner solutions’ (free floats, hard pegs) as their official exchange rate regime. Fischer (2001) presents initial evidence of a trend towards this bipolar view ‘for countries open to international capital flows’. However Masson (2001) concludes that intermediate regimes ‘will continue to constitute a sizable fraction of actual exchange rate regimes’. Indeed a closer investigation reveals that many developing countries have de facto implemented ‘intermediate solutions’ (managed floats, target zones, bands, crawling pegs) as their actual exchange rate regime. In this context, there are three types of issues when analysing the choice of an exchange rate regime and its sustainability. First, this type of study should not be based solely on official (de jure) classification of exchange rate arrangements, but also on actual (de facto) exchange rate regimes to obtain sensible results. Levy Yeyati and Sturzenegger (2001) produce a de facto exchange rate regime classification in five categories (1 ϭ inconclusive; 2 ϭ pure float; 3 ϭ dirty float; 4 ϭ dirty float/crawling peg; 5 ϭ peg) based on the volatilities of exchange rates, exchange rate changes and international reserves. They not only conclude that it is significantly different from the de jure exchange rate regime classification provided...

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