This paper examines the relationship between a central bank's control of the money stock and its exchange-rate policy. It is shown that this relationship influences the central bank's choice of the optimal policy instrument in the following ways. First, a policy of fixed exchange rates may significantly constrain a central bank's choice of instruments or eliminate that choice entirely. Second, for the case of a flexible but managed exchange rate, there may often be a conflict between control of the money stock and control of the exchange rate. Hence, the central bank must be willing to accept some type of tradeoff between these two objectives.