ABSTRACT
This chapter explores why and how the Group of Three (G3) countries and emerging markets should monitor and manage exchange rate flexibility. It discusses the raison d'etre of the consensus and reviews its main options. The chapter examines ways to manage exchange rate flexibility usefully through a system of adjustable reference parities in emerging markets and through a mechanism of exchange rate monitoring in countries with a floating currency, especially in the G3. It argues that the menu of options has been too limited: even with substantial capital mobility, there is a variant of fixed but adjustable exchange rate regimes, labelled an Adjustable Reference Parity Regime, that can help those emerging markets that wish to anchor domestic policies on an exchange rate target. The chapter describes the demise of fixed rates, before turning to some issues raised by exchange rate flexibility.
