Having a flexible exchange rate requires a certain degree of infrastructure and expertise these countries lacked.
To regain control over its monetary policy, China needs a more flexible exchange rate.
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Prasad says the best approach for China is to have a flexible exchange rate while managing its growth.
"A flexible exchange rate is one more channel for absorbing both positive and negative shocks, " he told the conference.
The more rigid wages are, the greater the need for a flexible exchange rate to help the economy respond to an external shock.
Another way of putting it is that a flexible exchange rate makes sticky internal prices and wages flexible to the rest of the world.
Yet in fact, a flexible exchange rate can offer more stability, partly by providing a safety valve which helps to protect the real economy.
The Chinese authorities have said that they will move to a more flexible exchange rate, but they will not be rushed, because the country's financial system is not ready.
The Chinese government says it will move towards a more flexible exchange rate in the medium term, but for the moment it wants to keep the yuan stable in order to support broader economic stability.
The Chinese authorities have substantially reduced the level of official intervention in exchange markets since the third quarter of 2011, and China has taken a series of steps to liberalize controls on capital movements, as part of a broader plan to move to a more flexible exchange rate regime.
But the sooner the public finances are brought under control, the sooner the country can afford a more flexible exchange-rate policy without risking a return to inflation.
Milton Friedman and others reminded us decades ago that such internal adjustments necessary to reverse an external deficit were ultimately the same under a gold standard, flexible exchange rates, or some hybrid exchange rate regime.
It is more flexible (with a floating exchange rate) and its central bank is still soundly run.
If a country has much higher inflation than its trading partners, its exchange rate needs to be flexible to prevent its goods from becoming uncompetitive in world markets.
Moreover, successful monetary union may sometimes require governments that have lost their monetary and exchange-rate flexibility to resort to a more flexible fiscal policy.
The real test for joining the euro should be whether an economy is flexible enough to cope with the strain of a permanently fixed exchange rate.
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