In this analysis Morris Goldstein examines currency regime choices for
emerging economies that are heavily involved with private capital
markets. The author argues that the best regime choice for such
economies would be managed floating plus, where "plus" is shorthand for
a framework that includes inflation targeting and aggressive measures to
discourage currency mismatching. Goldstein argues that if managed
floating were enhanced in this way, it would retain the desirable
features of a flexible rate regime while addressing the nominal anchor
and balance-sheet problems that have historically underpinned a "fear of
floating" and handicapped the performance of managed floating in
emerging economies. The author also shows why managed floating plus is
superior to four alternative currency-regime options--an adjustable peg
system, a "BBC (basket, band, crawl) regime," a currency board, and
dollarization.