Foreign currency regimes
In: Privredna izgradnja, Band 47, Heft 3-4, S. 233-248
There is no exchange rate regime that can be declared as the best one. Each regime has both advantages and disadvantages. In some situations, a regime can be very positive and in an other, it may have rather negative outcome. In the theory, regimes are classified as follows: currency union, currency board, "truly fixed", adjustable peg, crawling peg, basket peg, target zone, dirty float, free float. This paper addresses "fixed vs. flexible regime" issue and provides description of all the requirements, consequences, benefits, weaknesses and possibilities related to them. The final conclusion is that flexible regimes are more frequently used and preferred by most economists. After all theoretical analyses, policymakers are those who make decisions about the optimal exchange rate regime for the economy concerned.