Exchange Rate Management in Developing Countries: The Need for a Multilateral Solution

Heiner Flassbeck

Chapter 4 in New Issues in Regional Monetary Coordination, 2006, pp 59-72 from Palgrave Macmillan

Abstract: Abstract The discussion about adequate exchange rate systems for developing countries takes a new turn. Whereas, in the 1990s the official doctrine of the Washington-based finance institutions was the corner solution idea, where developing countries should either absolutely fix their exchange rate against an international anchor currency or float freely, after the Asian crises the international economics community favoured the return to floating. But only a few countries accepted this advice. Most of the countries affected by the storm of the financial crises in Asia and in Latin America decided to use the opportunity of a low valuation of their currencies and the swing from current account deficit to surplus to unilaterally fix their exchange rate or — at least — to frequently intervene in the currency market to avoid the rapid return of their currencies to pre-crisis levels. The most striking example is China, where the authorities, after the traumatic experience of an overvaluation and a big devaluation in 1994, absolutely fixed the value of the renmimbi against the US dollar.

Keywords: Exchange Rate; Interest Rate; Central Bank; Real Exchange Rate; Real Interest Rate (search for similar items in EconPapers)
Date: 2006
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Persistent link: https://EconPapers.repec.org/RePEc:pal:palchp:978-0-230-50244-4_4

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DOI: 10.1057/9780230502444_4

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