V Summary
  • 1 https://isni.org/isni/0000000404811396, International Monetary Fund
  • | 2 https://isni.org/isni/0000000404811396, International Monetary Fund
  • | 3 https://isni.org/isni/0000000404811396, International Monetary Fund

Abstract

The experience with flexible exchange arrangements in the specific form of floating exchange rates in developing countries since the advent of generalized floating by industrial countries in 1973 is relatively limited, although in recent years an increasing number of developing country Fund members have adopted such systems. The early experience indicates that floating exchange rate systems can function satisfactorily in developing countries with relatively diverse economic structures, despite the limited depth of their financial systems. However, the exchange arrangements have to be adapted to the institutional strengths and weaknesses of individual countries. Most particularly, these freely floating exchange market arrangements have to be supported by the sustained pursuit of appropriate domestic economic policies to ensure their efficient operation over time. Such arrangements are often also the only alternative to restrictions, arrears, and controls to insulate the balance of payments from domestic economic mismanagement. However, from an efficiency viewpoint, it must be stressed that a floating exchange rate cannot substitute for appropriate economic policies.