EXCHANGE-RATE POLICY IN DEVELOPING-COUNTRIES - WHAT IS LEFT OF THE NOMINAL ANCHOR APPROACH

Following the move to generalised flexible exchange rates in 1973, mos t developing countries decided to peg the values of their currencies. The trend since then has been towards adopting more flexible exchange rates. However, the idea of pegging the exchange rate re-emerged in th e context of exchange rate-based stabilisation. Here the currency peg is assumed to create a counter-inflationary nominal anchor. In contras t the real targets approach emphasises the need to maintain an equilib rium real exchange rate, Recent experience in Latin America, Africa an d East Asia provides an opportunity to reassess the debate over exchan ge rate policy. The assessment is largely unsupportive of the nominal anchor approach.