ABSTRACT
The “Washington consensus” of the 1990s about the desirable features of the international economic order included the view that countries allowing open goods and capital markets would have no other choice than to move to a pure floating exchange rate regime or else to enter into a monetary union. In this view intermediate regimes characterized by management of the exchange rate should be avoided because they are inherently unstable and sooner or later lead to a crisis. This consensus was reached mainly as a result of the collapse of fixed exchange rate regimes during the 1990s, first in Europe when the EMS disintegrated during 1992–93 and later in South-East Asia during 1997–98. This view was also given intellectual respectability by the development of theoretical models of exchange crises. In these models, rational agents trigger the collapse of the fixed exchange rate when the authorities fail to discipline monetary and fiscal policies to the rigours imposed by the markets, or worse when these rational agents create the crisis by the very fact that they predict it to happen.
