Flexible Exchange Rates and Emerging Markets
Starting in the 1990s – and faster since 2000 – emerging-market economies floated their currencies, hoping to insulate themselves from external shocks and gain the ability to set interest rates according to domestic objectives. The verdict is in: the new regime has been only partly successful.
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LONDON – Half a century ago, the Bretton Woods system collapsed, and by March 1973 the world’s major currencies had floating exchange rates. Starting in the 1990s – and faster since 2000 – emerging-market economies (EMs) also floated their currencies, hoping to insulate themselves from external shocks and gain the ability to set interest rates according to domestic objectives.