ABSTRACT
This chapter describes that, Peru held a lot of external debt, the largely public ownership of the external debt, dollarization, and the weakness of banking system gave few interest groups incentive to prefer a pegged exchange rate compared to Thailand or Mexico. It summarizes the exchange-rate policy of Peru since the 1950s. The chapter describes some of the main economic influences on the Exchange-Rate Regime (ERR), such as Peru's history of inflation, its relatively closed economy, and its pattern of foreign investment. It also describes the underdeveloped state of Peruvian banks, and why disintermediation has been the norm. The chapter draws conclusions on what preferences interest groups would have had for the ERR, and analyzes why most interest groups had little desire for a peg. It details the shift in government policy before and after 1990, when Peru switched from heterodox strategies and a peg to neo-liberal strategies and floating.
