What is the extent of exchange rate flexibility in South Asia?

Since the mid-1990s, many of the South Asian economies have embarked on reforms both internally as well as externally so as to integrate with the global economy, just as many of their East Asian neighbours have done since the early 1980s. As economies open themselves up to international trade and investments and cross-border capital flows, they face the inevitable tradeoffs in the choice of exchange rate regimes. On the one hand, there is a tendency to favour a heavily managed currency both to minimise volatility (with its possible detrimental impacts on trade and investment) as well as minimise the chance of acute currency misalignment. ¹ On the other hand, as a country becomes more open to external trade and financial shocks, a degree of exchange rate flexibility and concomitant monetary policy autonomy becomes crucial for macroeconomic management. It is not surprising, therefore, that many East Asian economies seem to have favoured intermediate regimes such as explicit or implicit currency baskets (Cavoli and Rajan 2009). Can the same be said about the South Asian economies?