Introduction

This chapter offers a brief perspective on some of the key issues of dispute concerning exchange rate policy, paying particular attention to the special circumstances facing emerging market economies. It discusses alternative objectives that determine, more or less explicitly, a government's choice of exchange rate regime. Specific characteristics of transition economies that could influence the objectives for exchange rate regime choice and the conflicts among such objectives are discussed. Microeconomic efficiency aspects may nevertheless be important for developing and transition economies, where macroeconomic conditions are more unstable and unpredictable. Furthermore, the efficiency losses associated with disequilibrium exchange rates are likely to be relatively more serious in such poor economies than in Western Europe. Different transition economies have chosen different paths with respect to the role of price-level stabilization in the transition process. The chapter also presents an overview of the key concepts discussed in this book.