Exchange Rates Regimes: With or Without the Sucre ?
The exchange rate crises of the 1990s would appear to rule out intermediate exchange rate regimes, in favour of extreme solutions. Several countries have recently adopted a currency board or even abandoned their own currency (for instance, the Ecuadorian sucre). At the other extreme, some countries have officially adopted freely floating exchange rate regimes. However, econometric analysis indicates that many of the latter continue to peg their currencies to a major international currency, such as the dollar. The advantage of such hegging is that it stabilises intra-regional flows, without necessitating monetary coordination. It nevertheless means that these countries have to face exchange rate instability between major currencies. One means of solving this dilemma in choosing between these two forms of instability would be to create regional monetary unions. Were such a policy to be pursued, in South America or in Asia, then it would affect the exchange rate regimes of the countries concerned forthwith. It would also help stabilise the international monetary system as a whole.
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