The series of crises that have affected emerging markets in recent years have reopened the debate on the most appropriate exchange regime for an emergent economy. In particular, all countries that experienced severe crises in the 1990s had some sort of fixed exchange rate regime, the majority of them falling in the categories that Corden (2002) calls the fixed-but-adjustable exchange rate regime (FBAR) and in-between regimes of the pegged (including flexible and crawling pegs) and target zone types. As a result, in recent years countries have been emigrating to a corner solution: a credible fixed regime or a floating regime with a monetary anchor. Within the latter categories, the increasingly used monetary regime is the inflation targeting one. The paper discusses the advantages and disadvantages of alternative exchange rate regimes and ends with a discussion of the possibility of dollarization in the Americas.
Keywords: Exchange rate systems; Inflation targeting; Dollarization
Views expressed in the paper are those of the authors and do not necessarily reflect those of the Bank of Japan or Institute for Monetary and Economic Studies.