De Facto Exchange Rate Regimes in Emerging Market Countries, 1990–2001: Some Empirical Evidence

Abstract

The choice of exchange rate regime is one of the most important topics in international economics that have been studied and debated over recent decades. This topic has gained momentum following the major currency crises seen in the 1990s (e.g. the European Monetary System (EMS) crisis in 1992–93, the Mexican crisis in 1994–95, and the Asian crisis in 1997–98). In a world with increasingly integrated capital markets, we are led to pose the question “what sort of exchange rate regime is sustainable?” Recently, some researchers have suggested that, in a world of increasing international capital mobility, only the two extreme exchange rate regimes (either hard pegs such as dollarization, currency boards or monetary unions, or a freely floating regime) are likely to be sustainable (Eichengreen 1994, Obstfeld and Rogoff 1995, Summers 2000, Fischer 2001). Conversely, intermediate exchange rate regimes (such as adjustable pegs, basket pegs, crawling pegs, or bands) are likely to be unsustainable and will disappear. This view has come to be known as the “bipolar view” or the “hollowing-out” hypothesis.