ABSTRACT
The main industrial economies have a long history of experience with both fixed and floating exchange-rate regimes. The inter-war period experienced a variety of exchange-rate arrangements from freely floating to exchange-rate management, with some failed episodes, while attempting to restore the post-1914 gold-standard regime. In the aftermath of the collapse of the Bretton Woods system the world again experienced a period of generalised floating and exchange-rate management. Empirical evidence appears to suggest that such credibility is best secured by government commitment to a publicly visible foreign exchange link or peg with a recognised hard currency. In economies trying to achieve macroeconomic stabilisation, the problems associated with volatile capital inflows include, as previously recounted, the loss of domestic monetary control, real appreciation, and increased instability. The success of any stabilisation programme depends on the capacity of the government to eliminate the real causes of the inflationary process.
