Moving to Greater Exchange Rate Flexibility: Operational Aspects Based on Lessons from Detailed Country Experiences
Occasional Papers, April 30, 2007
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Bibliographic details
- Authors: Inci Ötker
- Published: April 30, 2007
- Series: Occasional Papers
- DOI: https://doi.org/10.5089/9781589066243.084
Summary and purpose
- Many countries have moved towards more flexible exchange rate regimes over the last decade to take advantage of greater monetary policy autonomy and flexibility in responding to external shocks.
- Some reluctance to let go of pegged exchange rates persists despite the benefits of flexibility.
- The volume presents concrete steps taken by a number of countries in transition to greater exchange rate flexibility and elaborates on the operational ingredients that proved helpful in promoting successful and durable transitions.
- The work aims to provide a "road map" of how operational ingredients were established and coordinated, how their implementation interacted with macro and other conditions, and how they contributed to the smoothness of each transition.
Key findings and themes
- Benefits of greater exchange rate flexibility:
- Greater monetary policy autonomy.
- Increased capacity to respond to external shocks.
- Sources of reluctance to exit pegged regimes:
- Institutional and operational requirements needed to support a floating exchange rate.
- Difficulties in assessing the right time and manner to exit.
- Focus on operational ingredients:
- Identification and elaboration of operational steps and institutional arrangements that aided successful transitions.
- Emphasis on coordination of these ingredients and interaction with macroeconomic conditions.
Operational ingredients and country steps (high-level)
- The volume documents concrete steps taken by several countries transitioning to greater flexibility.
- It elaborates on operational elements that proved helpful in promoting successful and durable transitions, including:
- Establishment and coordination of institutional arrangements.
- Operational frameworks to support floating exchange rates.
- Interaction between operational measures and macroeconomic/market conditions to smooth transitions.
Policy implications and recommendations (implicit in scope)
- Strengthen institutional and operational capacity before and during transition to flexibility.
- Carefully assess timing and sequencing for exiting pegged arrangements.
- Coordinate operational ingredients with macroeconomic policy and market development to enhance durability of transition.