Philippine Standard time

Exchange Rate Policy: Recent Failures and Future Tasks

The sudden depreciation of the peso beginning in July 1997 was ultimately traceable to the Philippines' declining competitiveness. Hence the crisis had real domestic roots, which speculation and the regional currency crisis merely exposed. The authors discuss the crucial role played by the exchange rate in determining competitiveness and show how the Bangko Sentral's flawed policy of exchange rate pegging made the country vulnerable to speculative attack. They argue that tight money policies and high-interest rates seeking to reverse it are a cure that may be worse than the disease. The authors call for a revamp of the goals and methods of exchange rate policy and suggest ways to accomplish this.


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