Moheeput, Ashwin (2008) Issues on the choice of exchange rate regimes and currency boards – an analytical survey. Working Paper. University of Warwick, Department of Economics, Coventry.

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Abstract

Currency boards have often been at the heart of monetary reforms proposed by the International Monetary Fund (IMF) : they have been instrumental either as a short term crisis management strategy that successfully restores financial order for many countries seeking stabilization in the aftermath of prolonged economic crisis or as a way of importing monetary credibility as part of a medium / long term strategy for conducting monetary policy. As backbone of a credible exchange-rate based stabilisation programme, they have also been the linchpin of several heterodox or orthodox programmes aimed at mitigating hyperinflation. This paper attempts to synthetize our thinking about currency boards by reviewing their strengths and weaknesses and endeavours to seek real world examples to rationalise their applicability as opposed to alternative exchange rate regimes. Architects of international financial stability at the IMF or at central banks often ponder about the prerequisites for such programme to work well. These are also reviewed using appropriate economic theory where necessary. Finally, this paper sheds light on the best exchange rate regime that may be adopted in the intermediate term by those countries wishing to adopt a currency board, not as a quick fix solution to end an economic chaos but rather, as integral part of a long term monetary strategy.

Item Type:	Working or Discussion Paper (Working Paper)
Subjects:	H Social Sciences > HG Finance
Divisions:	Faculty of Social Sciences > Economics
Library of Congress Subject Headings (LCSH):	International Monetary Fund, Currency boards, Monetary policy, Foreign exchange rates, Inflation (Finance)
Series Name:	Warwick economic research papers
Publisher:	University of Warwick, Department of Economics
Place of Publication:	Coventry
Date:	April 2008
Number:	No.855
Number of Pages:	41
Status:	Not Peer Reviewed
Access rights to Published version:	Open Access
References:	[1] Balassa, Bela (1964), “The Purchasing Power Parity Doctrine: A Reappraisal”, Journal of Political Economy, pp 584 – 596 [2] Baliño Tomás, Charles Enoch, Alain Ize, Veerathi Santiprabhob, and Peter Stella (1997), “Currency Board Arrangements: Issues and Experiences”, IMF Occasional Paper 151 (Washington: International Monetary Fund) [3] Chang, Roberto and Andres Velasco (2000), “Exchange Rate Policy for Developing Countries”, American Economic Review, May 2000; 90, 2 [4] Duttagupta, Rupa, Gilda Fernandez, Shogo Ishii and Cem Karacedg (2004), “Fear no More”, Finance and Development, December 2004, IMF Publication [5] Enoch, Charles and Anne-Marie Gulde (1997), "Making a Currency Board Operational," IMF Paper on Policy Analysis and Assessment 97/10 (Washington: International Monetary Fund) [6] Enoch, Charles and Anne Marie Gulde (1998), “Are Currency Boards a Cure for all Monetary Problems”, Finance and Development, December 1998, IMF Publication [7] Fischer, Stanley (2001), “Exchange Rate Regimes: Is the Bipolar view correct ?”, Finance and Development, June 2001, IMF Publication [8] Ghosh, Atish, Anne-Marie Gulde, and Holger C. Wolf (1998), "Currency Boards: The Ultimate Fix?" IMF Working Paper 98/8 (Washington: International Monetary Fund) [9] Gulde, Anne Marie (1999), “The role of the Currency Board in Bulgaria’s Stabilization”, Finance and Development, December 1999, IMF Publication [10] Hanke, Steve and Kurt Schuler (2000), “Currency Boards in Developing Countries: A Handbook”, Institute for Contemporary Studies. Available online at: http://users.erols.com/kurrency/icegrev.htm [11] Masson, Paul and Catherine Paltillo (2004), “A single Currency for Africa”, Finance and Development, December 2004, IMF Publication [12] Moheeput, Ashwin (2007), “Exchange Rate Arrangements in Emerging Markets: An Institutional Mechanism Design Approach”, mimeo University of Warwick [13] Mundell, Robert (1961), “Theory of Optimal Currency Area”, American Economic Review, Vol 51, No 4, pp 657-665 [14] Obstfeld, Maurice and Kenneth Rogoff (1995), “ The Mirage of Fixed Exchange Rate Regime”, Journal of Economic Perspectives, [15] Roubini, Nouriel, “The case against Currency Boards: debunking 10 myths about the benefits of Currency Boards”, Nouriel Roubini website [16] Samuelson, Paul (1964), “Theoretical Notes on Trade Problems”, Review of Economics and Statistics, 23, pp 1-60 [17] Sargent, Thomas and Neil Wallace (1981) , “ Some Unpleasant Monetarist Arithmetic ”, Federal Reserve Bank of Minneapolis Quarterly Review, Fall 1981 [18] Szapary, Gyorgy (2001) , “Transition Countries’ choice of exchange rate regime in the run-up to EMU membership”, Finance and Development, June 2001, Vol.38, No. 2 Other Sources: “Floating with an anchor”, Economics and Finance Section, The Economist, January 2000 “Currency Dilemmas”, Economics and Finance Section, The Economist, November 2000
URI:	http://wrap.warwick.ac.uk/id/eprint/1361

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