Rethinking Exchange Rate Regimes
This paper employs an updated algorithm and database for classifying exchange rate and anchor currency choice, to explore the evolution of the global exchange rate system, including parallel rates, capital controls and reserves. In line with a large recent literature, we find that the dollar has become ever-more central as the de facto anchor or reference currencies for much of the world. Our discussion encompasses the history of anchor currency choice, methods for classifying exchange rate regimes, a detailed discussion of the evolution of regimes, the growing substitution of reserves for capital controls as a tool for exchange rate stabilization, the modern Triffin dilemma, and the surprising recent trend decline in volatility of exchange rates at the core of the system. It concludes with issues surrounding the rise of China.
Corresponding author: Department of Economics, London School of Economics, Houghton Street, London WC2A 2AE, United Kingdom, email@example.com. Carmen Reinhart: Harvard University and the World Bank, Kenneth Rogoff: Harvard University. Mun Fai Chan, Clemens Graf von Luckner, and Yifan Wang provided outstanding research assistance. We thank the editors, our discussants Barry Eichengreen and Charles Engel, and conference participants for their comments. We acknowledge financial support from the Centre for Macroeconomics, as well as the Molly and Dominic Ferrante Fund. Prepared for Handbook of International Economics vol 5, ed. by Gita Gopinath, Elhanan Helpman and Kenneth Rogoff The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.