Exchange rate policy in developing countries: What is left of...

Following the move to generalised flexible exchange rates in 1973, most developing countries decided to peg the values of their currencies. The trend since then has been towards adopting more flexible exchange rates. However, the idea of pegging the exchange rate re-emerged in the context of exchange rate-based stabilisation. Here the currency peg is assumed to create a counter-inflationary nominal anchor. In contrast the real targets approach emphasises the need to maintain an equilibrium real exchange rate. Recent experience in Latin America, Africa and East Asia provides an opportunity to reassess the debate over exchange rate policy. The assessment is largely unsupportive of the nominal anchor approach. [ABSTRACT FROM AUTHOR]