essay：What is the best Currency Regime.docx

What is the best Currency Regime？AbstractThe choice of an appropriate exchange rate regime for countrieshas been at thecenter of the debate in international finance for a long time.However, today’s currency regimes are diversified and mainly divided into three categories. So what is the best currency regime? How could policy makers deal with this problem. This essay provides a review of the main currency regimes and how to selectan appropriateregimes for a nation. Theconsensusreached and lessons learned from others’ experiencewill be summarized. As a result, different forms of currency regimes have different advantages and disadvantages. There is no best regime for all the countries at all times but a mostappropriate regime exists. 1IntroductionThere might be no doubt that the currency regime plays a rather important role in a country’s economy. Nowadays, exchange rateregimes are typically divided into three broad categories, which are hard exchange rate pegs, soft exchange rate pegs and floating exchange rate regimes (Anderson etc, 2008). In the past decades, there seemed to be a lengthy debate simmering over the merits of each regime. According to Miles (2006), choosing a proper exchange rate regime has come to be seen as an increasinglyvital task for emerging market policymakers.As such, the different forms of currency regimes and their impact will be discussed and analyzed in this essay. This essay proceeds as follows. In section two, the background literature on exchange rates regimes and its impact on economic growth will be reviewed. Section three is the analysis and Section four concludes.2 Background literatureSome empirical evidences on this topic have been foundand different point of views is included. Dornbusch (2001) indicates that a kind of common money may lower currency riskand hence interest rates, thus promoting investment and growth. Similarly, Shambaugh (2004) points out that countries which peg their currencies follow the interest rate movements