Exchange Rate Stability and Financial Stability

Barry Eichengreen

Open Economies Review, 1998, vol. 9, issue 1, 569-608

Abstract: Historical evidence reveals no monocausal explanation for banking crises, including one which would emphasize the maintenance of a currency peg. To some extent this follows from the standard textbook wisdom: whether fixed or flexible exchange rates are preferable depends on the source of disturbances. If threats to the stability of the banking system come from the “outside,” there is a case for exchange rate flexibility to discourage the banks from relying excessively on external sources of finance and to enhance the capacity of the domestic authorities to act as lenders of last resort. Conversely, if the main threats to the stability of the banking system emanate from “inside” (e.g., erratic monetary policies at home), there is an argument for attempting to peg the exchange rate in order to discipline domestic policymakers and vent shocks via the external sector. From this point of view, it is no surprise that there is no simple correlation between the exchange rate regime and the prevalence of banking crises. Copyright Kluwer Academic Publishers 1998

Keywords: exchange-rate regime; banking crisis; financial stability; lender of last resort (search for similar items in EconPapers)
Date: 1998
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (27)

Downloads: (external link)
http://hdl.handle.net/10.1023/A:1008373022226 (text/html)
Access to full text is restricted to subscribers.

Related works:
Working Paper: Exchange Rate Stability and Financial Stability (1997)
Working Paper: Exchange Rate Stability and Financial Stability (1997)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:kap:openec:v:9:y:1998:i:1:p:569-608

Ordering information: This journal article can be ordered from
http://www.springer. ... cs/journal/11079/PS2

DOI: 10.1023/A:1008373022226

Access Statistics for this article

Open Economies Review is currently edited by G.S. Tavlas

More articles in Open Economies Review from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().