1. Spectrum of Exchange Rate Arrangements … From Fixed to Flex Currency Union: EMU/USA/CFA Dollarization: Ecuador/Panama Currency Board: Argentina, 1990s Commodity Standard: Gold Standard Adjustable Peg: Bretton Woods Target Zone: ECU – ERM Crawling Peg: Mexico, early 1990s Dual Exchange Rate Systems : : Dirty Float/Managed Float Clean Float

3. Review: Monetary Union Benefits and Costs Benefits Reduced Transaction Costs Reduced Uncertainty/Currency Risk –Long – term capital flows –Hot money … extinguished DISCIPLINE –Monetary Policy/Fiscal Stance –Wages and Prices

4. Review: Monetary Union Benefits and Costs Costs DISCIPLINE –Loss of discretion –Asymmetric shocks …different strokes Alternative Flexibility –Flexible wages –Labor mobility –Capital mobility Division of Seignorage

6. Fixed Exchange Rates in History: Some Terms The Gold Standard –Par Value –Gold Points –“Bank Rate” Bretton Woods … IMF –Key Currency –Vehicle Currency –Fundamental Disequilibrium –Standard Drawing Rights (SDR) –Exchange Stabilization Fund –Devaluation / Revaluation

7. Recent Currency Crises Speculative Attacks, Contagion European Monetary System, Sept 1992 –UK –Sweden –Italy Mexico Tequila Crisis, Dec. 1994 – 1995 East Asia, 1997 - 1998 –Thai bhat –Indonesian rupiah –Malaysian ringgit –Philippine peso –Korean won –Hong Kong/Singapore/Taiwan dollars Russia, 1998 Brazil, 1998 Argentina, 2001 Prescription: Tobin Tax  Repel hot money