The Analysis of Floating Exchange Rates and the Choice Between Crawl and Float

Economists are often chastised by businessmen (and each other) for their propensities for theoretical arguments (‘Assume you have a can-opener, …’). The arena of international monetary debate is littered with the debris of reform proposals by academic economists. The crawling peg is one of the few academic reform proposals that have actually been adopted by a number of countries. But as John Williamson has pointed out in his paper for this conference, the countries which have adopted the crawling peg are not the countries the academic reformers thought they were addressing, namely industrialised countries with convertible currencies. Instead, the virtues of the proposal were seen and acted upon by a courageous and innovative group of finance ministers in high-inflation, semi-industrialised or less developed countries. As Williamson also notes, the virtues which they saw and acted upon were not related to balance of payments adjustment, which had been the principal focus of the academic discussion, but were rather related to neutralisation of the external effects of high domestic inflation.