Still on the convertibility

Persio Arida ()

Brazilian Journal of Political Economy, 2003, vol. 23, issue 3, 481-488

Abstract: The paper introduces a 2x2 taxonomy of exchange rate regimes in terms of convertibility restrictions (yes or no) and the form of price determination (floating versus managed exchange rates). It is argued that the convertibility is an important signal to private agents. Free convertibility in presence of fixed exchange rates reinforces the credibility of the peg; the presence of restrictions to convertibility in face of floating exchange rates reveals lack of confidence of Central Bank on the stability of the monetary standard. The former was the case of Argentina before the demise of the Cavallo plan; the latter is the case of Brazil today. The consolidation of monetary stability in present circumstances requires a sustained fiscal effort; a pre-announced process of gradual lifting of convertibility restrictions, however, may somehow alleviate such effort, thereby rendering it politically feasible. JEL Classification: F41.

Keywords: Exchange rate regimes; convertibility; fiscal surplus (search for similar items in EconPapers)
Date: 2003
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