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This article traces the origins and evolution of proposals for exchange-rate regimes intermediate between fixed and floatingrates. The origins are traced to Keynes's interwar writings. Keynes's ideas were revived in the 1960s literature on the (wide) band proposal and crawling peg and developed in the 1970s by the literatures on the reference rate proposal and optimal peg. The target zone proposals of the 1980s combined the band proposal and the crawling peg. Paul Krugman showed that a credible target zone would make speculation stabilizing. In the 1990s, a number of emerging markets employed such regimes until they were swept away in crises. This spawned the bipolar view, which asserts that in a world of capital mobility, countries have to choose between firmly fixed and freely floating rates. The article concludes by arguing that even the most attenuated form of intermediate regime, the reference rate proposal, would carry advantages over a floating regime

This article traces the origins & evolution of proposals for exchange-rate regimes intermediate between fixed & floating rates. The origins are traced to Keynes's interwar writings. Keynes's ideas were revised in the 1960s literature on the (wide) band proposal & crawling peg & developed in the 1970s by the literatures on the reference rate proposal & optimal peg. The target zone proposals of the 1980s combined the band proposal & the crawling peg. Paul Krugman showed that a credible target zone would make speculation stabilizing. In the 1990s, a number of emerging markets employed such regimes until they were swept away in crises. This spawned the bipolar view, which asserts that in a world of capital mobility, countries have to choose between firmly fixed & freely floating rates. The article concludes by arguing that even the most attenuated form of intermediate regime, the reference rate proposal, would carry advantage over a floating regime. 21 References. [Copyright 2002 Sage Publications, Inc.]

The evidence of the East Asian crisis is now in, and does indeed point to the conclusion that weaknesses in the financial systems and free capital mobility played a central role in propagating and deepening the crisis. All the crisis countries had essentially opened themselves to uncontrolled inflows of short-term funds, and allowed foreign borrowing of their domestic currency. It is well known that the abolition of capital controls has often been followed by a large inflow of capital. Moreover, this inflow has typically been disproportionately in the form of short-term capital. As the crisis developed, domestic financial institutions found themselves unable to borrow, or even to roll over maturing loans on any terms at all. A major factor behind the financial crisis was the unbalanced currency exposure resulting from a large level of dollar borrowing. As illustrated by the case of Thailand, this meant that depreciation of the baht produced illiquidity/insolvency of the banks either directly (if the currency exposure was taken by them) or indirectly (if the currency exposure was taken by their customers, whose loans then turned bad). The banks' financial problems then forced them to cut back lending, which aggravated, and may have been the principal cause, of the recession that followed. In terms of recommendations, the author suggested that while current account convertibility is certainly desirable, countries that still have capital controls should not be expected to make a sudden rush for convertibility. Such controls may be aimed at controlling the sudden withdrawal of short-term loans, by banks and other financial institutions, which led to earlier crises. While the author expressed a belief that people and governments can learn from the experience accrued from the financial crisis, he was actually less optimistic as to whether market participants will learn things that will head-off future crises. He also expressed doubts as to whether personal incentive structures in markets are calibrated in a way that makes it individually advantageous to take actions that reduce the likelihood of crisis. This will change only when governments decide to do something to change the parameters within which the markets operate. The primary lesson that the author drew for crisis-affected countries is to be cautious about liberalizing the capital account. This does not mean that they should freeze all activity in that direction, but it does mean avoiding getting carried away by euphoria when growth trends return, as now appears the case. A second lesson was that even if bankruptcy laws, good supervision, reformed corporate governance are of marginal relevance to the avoidance of crises, they are important to prepare developing countries for the next stage of development. In East Asia, the main needs are for strengthened bank supervision, better bank management, and, once that is in place, bank recapitalization. The final step would be to reprivatize those banks that were saved by the injection of public funds and are now owned by the government. He also mentioned that despite images to the contrary, equity markets are already rather well developed in Asia in comparison to world norms. In terms of banking reform, Dr. Williamson suggested an orderly approach that starts with building up supervisory and managerial capacity, followed by raising interest rates to something close to market-clearing levels. Only then should interest rates be freed and all controls on the flow of credit be abolished. As already argued, capital account liberalization should be left to the end.

This paper aims to explore Pakistan's geo-economic options in
the difficult situation that confronts following the easing of
sanctions, which added acute balance of payments pressures to its
existing ailments of near-stagnant exports, a lower growth trend than in
preceding decades, an unattractive climate for foreign investment, and
weak social indicators. The first question explored is whether Pakistan
has any opportunity of participating in a regional trade grouping. It is
argued that the only conceivable way of achieving this would involve the
development of SAARC, which would demand a profound transformation of
Indo-Pakistani relations (though one no more profound than that realised
in Franco-German relations since the founding of what is now known as
the European Union). One benefit of achieving deep integration through
SAARC is that this would create the possibility of Pakistan developing a
serious engineering industry far more rapidly than will otherwise
happen. In the absence of deep integration in SAARC, it is argued that
Pakistan's best option would be a policy close to unilateral free trade,
so as to place it in a position to take advantage of whatever the next
generation of labour-intensive activities demanded by the world economy
proves to be. Under either of those scenarios, the reestablishment of a
dynamic industrial sector will require the maintenance of a competitive
exchange rate, something that, it is argued, is not necessarily
guaranteed by floating. The paper also discusses the role of inward
direct investment in contributing to the export success of East Asia,
and considers whether the expatriate Pakistani community might be
capable of playing a role comparable to that played by the overseas
Chinese in nurturing the Chinese export expansion of the last two
decades. It is suggested that such a hope was set back by the
extra-legal attempt to renegotiate power tariffs with the independent
power producers in the course of 1998, and that Pakistan needs to become
a country of laws rather than discretion if foreign investors, including
expatriate Pakistanis, are ever to find the country an attractive export
platform. While more inward direct investment would almost certainly be
beneficial, the same is not true for inward financial investment, where
too large an inflow can easily expose a country to very significant
risks, as the East Asian crisis showed. In the long run, Pakistan needs
to be prepared to repel excessive capital inflows if they materialise;
but its immediate problem is still balance of payments pressure, and
this seems to demand targeting a major and sustained improvement in the
current account over the next several years.

En el presente trabajo, el autor aborda los problemas del sistema financiero internacional desde la optica del manejo de los flujos de capitales recibidos por los paises en vias de desarrollo, tanto en la actualidad como a raiz de los problemas de la deuda en los 80. A continuacion pasa revista a las diferentes opciones que han sido instrumentadas por algunos paises de America Latina para hacer frente a las recientes entradas de capitales, deduciendo a partir de ahi recomendaciones de politica economica para ayudar a que otros paises aprendan de la experiencia latinoamericana. (Pensam Iberoam/DÜI)