ABSTRACT
Exchange rate targets are more transparent to the general public and financial markets and involve setting the exchange rate against a low inflation anchor country. Inflation targeting has a similar advantage to monetary targeting and contrasts to exchange rate targets in that it enables monetary policy to focus on domestic considerations and to respond to shocks in the domestic economy. The North American and Swiss schools of monetarism argue that the stock of money in the economy should be regulated by the central bank controlling the supply of money; that is, the monetary base should be controlled. Monetary targets were adopted during the course of the 1970s when there were a number of constraints on domestic finance and velocity of circulation was predictable. Exchange rate targeting has several advantages and has been successfully adopted by many industrial countries as a more robust nominal anchor than monetary targets.
