The Case for Fixed Exchange Rate Regimes: What for and in What Form?

Adrien Faudot and Nikolay Nenovsky ()

Chapter Chapter 10 in Debates in Monetary Macroeconomics, 2022, pp 193-216 from Springer

Abstract: Abstract This paper provides several arguments for fixed exchange rates. First, any firm doing business abroad needs a stable and orderly exchange rate system. This is why most international corporations have chosen the US dollar as their functional currency. Second, although fixed regimes have been accused of hindering monetary policy, the paper argues that floating regimes do not guarantee currency sovereignty. Whether floating or fixed exchange rates are operative, a balance of payments constraint continues to apply to economic policies. Third, although history is replete with examples of “bad” exchange rate fixing, which fosters disequilibria and crises, fixed rates can pave the way for greater international monetary coordination, which is impossible if so-called independent monetary policies lead to currency devaluations and beggar-thy-neighbour policy measures.

Keywords: Fixed exchange rates; Hard peg; Capital controls; International clearing union; Balance of payments constraint; Monetary policy (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:spr:sprchp:978-3-031-11240-9_10

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DOI: 10.1007/978-3-031-11240-9_10

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