WHY CLASHES BETWEEN INTERNAL AND EXTERNAL STABILITY GOALS END IN CURRENCY CRISES, 1797-1994

We argue that recent currency crises reflect clashes between fundament als and pegged exchange rates, just as did crises in the past. We reje ct the view that crises reflect self-fulfilling prophecies that are no t closely related to measured fundamentals. Doubts about the timing of a market attack on a currency are less important than the fact that i t is bound to happen if a government's policies are inconsistent with pegged exchange rates. We base these conclusions on a review of curren cy crises in the historical record under metallic monetary regimes and of crises post-World War II under Bretton Woods, and since, in Europe an and Latin American pegged exchange rate regimes.