Exchange Rate Regime Choice With Multiple Key Currencies

Provided by: Trinity College Dublin
Topic: Software
Format: PDF
Recent scholarship on exchange rate regime choice seeks to explain why some countries fix their exchange rate to an anchor currency, but it neglects the question to which currency countries peg. This paper posits that an understanding of the choice of anchor currency also improves political economists' understanding of the decision for an exchange rate peg itself. Drawing on the 'Fear of floating literature', the authors argue that the choice of anchor currency is mainly determined by the degree of dependence of the potentially pegging country on imports from the country or currency union issuing the key currency as well as the degree of dependence on imports from the currency area, that is, from other countries which have already pegged to that key currency.

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