DP16722 Rethinking Exchange Rate Regimes

Author(s): Ethan Ilzetzki, Carmen M. Reinhart, Kenneth Rogoff
Publication Date: November 2021
Keyword(s): anchor currencies, capital controls, exchange rate regimes, Exchange Rate Volatility, international monetary system, Triffin dilemma
JEL(s): E5, F3, F4, N2
Programme Areas: International Macroeconomics and Finance
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=16722

This paper employs an updated algorithm and database for classifying exchange rate and anchor currency choice, to explore the evolution of the global exchange rate system, including parallel rates, capital controls and reserves. In line with a large recent literature, we find that the dollar has become ever-more central as the de facto anchor or reference currencies for much of the world. Our discussion encompasses the history of anchor currency choice, methods for classifying exchange rate regimes, a detailed discussion of the evolution of regimes, the growing substitution of reserves for capital controls as a tool for exchange rate stabilization, the modern Triffin dilemma, and the surprising recent trend decline in volatility of exchange rates at the core of the system. It concludes with issues surrounding the rise of China.