The Relationship Between The Appropriate Exchange Rate Regime And The Economic Development: An Analytical Approach

Interest in experimental and theoretical studies on the choice of the exchange rate regime in developing countries began following the currency crises that shook the economies of Mexico (1994), South-East Asia (1997), Russia (1998) and Brazil (1999). In the face of free movement of capital and other shocks, and immediately after these crises, a growing consensus emerged among developing economies that were closely integrated into the international trading and financial system on the need to either float or move to seamless binding.Less attention had been paid to the arrangements for linking the arbitrator by the Argentine crisis, and then, it has become the prevailing view now that the increased flexibility in the exchange rate management would help to address external shocks, and reduce the risk of banking crises, and to contribute to the achievement of financial stability. Theoretical studies provide for the choice of an exchange rate system capable of improving the level of gross domestic product and adapting to external shocks. The nature and magnitude of shocks likely to be experienced by the economy, as well as the structural characteristics of the commodity and labor market and the financial market of the country, are important considerations in the choice of an appropriate exchange rate regime for the economy.