Kicking the habit: Moving from pegged rates to greater exchange rate flexibility

Why do governments find it so difficult to move from pegged exchange rates to greater exchange rate flexibility! I first establish that there is a pro blem to be solved: that there are powerful incentives for greater flexibili ty deriving from changes in the international economic and financial enviro nment but that policymakers find it difficult to engineer a smooth transiti on. I offer practical suggestions and a framework under which the probabili ty of a smooth transition can be maximised. Drawing examples from recent ec onomic history, I then attempt to understand the experience of selected cou ntries which have undertaken this transition.