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The Range of Pegged Exchange Rate Regimes: A Review of Their Advantages and Disadvantages Emphasizing on Oil Exporting Countries
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Roya Atefimanesh *   |
| ministry of economic affairs and finance |
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Abstract: (13764 Views) |
| The present paper reviews the various forms of pegged exchange rate regimes and shows that these types of exchange arrangements are the most used ones in the world, especially in oil-exporting countries. Some of the most considerable advantages of this regime usage are controlling exchange rate fluctuations, restraining inflation, creating an anchor price for commodity trading and facilitating foreign investment. However, due to the increasing interconnectedness of global financial markets and globalization, the costs of pegged exchange rate regimes are ascending. So a lot of countries with such arrangements tend to use more floated regimes. However, transition from pegged to floating regimes in developing countries has its own risks which impose massive economic costs. From this point of view, some more flexible options like "pegging to a basket of currencies", “pegging to a basket that includes the price of oil " and "managed floating regime" have been considered as intermediated options. The report also indicates that despite different currency regimes announced by the Central Bank of I.R. Iran over the last 35 years, there is always some fear of floating exchange rates and tendency to a pegging exchange rate regime, and gradual non-adjustment of nominal exchange rate in proportion with internal and international inflation ratio, coincides with its gradual increase in 10 years periods. Finally, the paper in addition to emphasize at providing managed floating exchange rate regime requirements such as targeting and controlling inflation, declares that independence of central bank and adjusting nominal exchange rate in proportion with internal and international inflation ratio, as the most appropriate options and suggests that " pegging to a basket that includes the price of oil " is certainly better than "managed floating regime" for Iran. But due to non-compliance with its obligations, Iran actually shows significant tendency to pegged exchange rate. |
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| Keywords: Exchange Rate, Pegged Exchange Rate Regime, Purchasing Power Parity, Iran’s Exchange Regime. |
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Full-Text [PDF 340 kb]
(3595 Downloads)
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Type of Study: Research |
Subject:
Special
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