Exchange rate policies for developing countries

Abstract

Publisher Summary This chapter discusses the exchange rate policies for developing countries. Developing countries have generally favored adjustable par values as the basis for the world exchange rate system. This has been apparent both in their attitude in negotiations on reform of the international monetary system and in their reactions to the exchange rate developments of recent years. Most developing countries have, in the management of their own exchange rates, maintained a fixed peg against a single intervention currency, though a significant minority have moved to floating exchange rates or have pegged their rates to a basket of currencies. The case for flexible or floating exchange rates versus a system of adjustable par values has usually been made abstracting from the level of development of countries. The chapter discusses the differentiating characteristics of developing countries that may affect their preference for a particular exchange rate system. It discusses various possible policy reactions of developing countries to the current situation, where the industrial nations' currencies are floating.