Abstract
In the early twenty-first century the background against which policy makers have to choose an exchange rate regime is characterized by global financial integration, the dominance of capital account over current account transactions, large unhedged foreign currency liabilities, unpredictable fluctuations between the three main currencies and frequent financial crises linked to financial reforms and volatile portfolio flows. Given all of this, the mainstream advice to developing countries has been to adopt one of the two ‘corner solutions’ — that is, a hard peg or a pure float. However, whether this suggestion is good for growth and poverty alleviation is not at all clear. In this regard, this chapter reviews the evolution of the exchange rate regimes, examines the impact of alternative exchange rate regimes on growth, inflation and the balance of payments and discusses the choice of the exchange rate regime that minimizes poverty under normal conditions and crisis periods.
The author would like to thank Leonardo Menchini for his help in compiling the data for Tables 4.1 and 4.2 and for useful bibliographical indications, as well as Gian Maria Milesi-Ferretti of the IMF for sharing his dataset on capital account liberalization and for pro-viding the 2000–2003 data on capital account restrictions.
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© 2006 Palgrave Macmillan, a division of Macmillan Publishers Limited
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Cornia, G.A. (2006). Exchange Rate Regimes for Development and Poverty Alleviation. In: Cornia, G.A. (eds) Pro-Poor Macroeconomics. Social Policy in a Development Context. Palgrave Macmillan, London. https://doi.org/10.1057/9780230627901_4
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DOI: https://doi.org/10.1057/9780230627901_4
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