The Currency game: exchange rate politics in Latin America

Abstract

Exchange rates have been central to the course of economic development in Latin America from the heyday of import substitution to the rapid expansion of foreign debt in the 1970s, and from the debt crisis and its troubled aftermath to renewed growth and borrowing in the 1990s. Why do governments choose the currency policies they do, and how do economic and political factors affect these policies? Although currency policy is made by governments operating in a political environment, there has been little study of the political economy of exchange rate policy. This work seeks to fill this void by examining the range of potential determinants of currency choices by Latin American governments. While purely economic factors - especially economic structure, trade patterns and exogenous economic conditions - are of course important to these choices, the book focuses on the political and political economy considerations that have typically been underrepresented in the literature. These include the effects of interest groups, electoral competition, and the timing of elections on exchange rate decisions. Since exchange regimes are adopted for reasons as diverse as inflation control, reduced volatility and improved competitiveness, the book also features a cross-country analysis of national exchange rate policies, as well as case studies of Argentina, Brazil, Chile, Colombia and Peru.