While it may seem hard to imagine that the speculative tide might ever turn against China, exchange rate pressures can turn in an instant.

It is a lot easier to exit from a fixed exchange rate regime when the pressures on the currency are upwards.

On the exchange rate, a narrow fluctuation band should be avoided.

This strategy does not imply a pre specified target zone for exchange rates.

Indeed, China s rulers have already stated that the new exchange rate system will aim at maintaining currency stability.

The US, the IMF, and others had encouraged Asian countries to increase exchange rate flexibility.

Most critically, the ECB has de emphasized in its Policy Position the former 2.25 fluctuation band in the ERM II as the criterion for assessing exchange rate stability. This corresponds to the view shared by many accession countries that such a narrow band would increase the risks in managing the run up to adopting the euro.

Most critically, the ECB has de emphasized in its Policy Position the former 2.25 fluctuation band in the ERM II as the criterion for assessing exchange rate stability.

As for China s renminbi, it is still supported by a highly political exchange rate regime.

Outside Japan, Asia policymakers certainly don t seem amenable to exchange rate appreciation

It was also true of the portfolio insurance programs that caused the New York Stock Exchange s Black Monday of October 1987.

This is true of so called knockout options, used in currency hedging.

Then the pastors collected their money again and continued to pray over the notes so that the money gains value.

Irrevocably fixing the exchange rate was at best a gamble, at worst a blunder.

So is there a chance that the exchange rate trend may already be overshooting?

A few years of limited exchange rate flexibility is a poor substitute for rapid completion of structural reforms.

In the absence of exchange rate depreciation, the adjustment process will depress wages and prices, raising the specter of deflation.

There is some risk that appreciation of the exchange rate if greater flexibility were allowed could precipitate deflation.

To be sure, reserves are important to smooth out imbalances in a fixed exchange rate regime.

The new PPP data also have implications for evaluating the extent of poverty and the level of a currency s exchange rate.

Chile made its transition to high growth in the 1980 s on the back of a large depreciation.

Moreover, a change in China s exchange rate would do little to alter the multilateral trade deficit in the US.

Like Cardoso, Neves is committed to inflation targeting, creating a primary surplus, and maintaining a floating exchange rate.

This gives you time to whisk your money out unscathed before any change in currency values.

By contrast, the link between official intervention and exchange rate movements is much more direct and potent. Given massive trading volumes, direct intervention can alter supply and demand for currencies only on the margin.

The international community needs a setting where it can debate the most sensitive economic issues, including but certainly not limited to exchange rate issues.

Mechanisms for implementation

The IMF did not want Russia to devalue, and it provided billions of dollars to prop up the exchange rate.

The first is that there is no mechanism linking world trade rules to exchange rate movements.

Argentine leaders were repeatedly warned that keeping the exchange rate constant and fixing the peso's value against the US dollar risked sending the economy into recession if the dollar gained value.

So should we expect to see much bigger currency moves in China anytime soon?

But in Russia, there is no trade off between the two, at least not using the exchange rate.

National preventive mechanisms

Internal controls

Russian SOPA s nuts and bolts

But what could take the place of the stable exchange rate as an anchor for monetary policy and for tying down inflation expectations?

What this really highlights, however, is the importance of framing the debate about exchange rate flexibility in a broader context.

Instead, our limit the swings strategy implies that, as the exchange rate moves further away from parity, central banks should intervene.

Countries spend years negotiating trade rules, but exchange rate movements can, within days, have a greater impact on trade than those painstaking deals. Furthermore, exchange rate movements are essentially determined by financial flows and may have no effects in terms of correcting global trade imbalances.

Currency undervaluation is such a potent instrument for growth for the simple reason that it creates incentives for the economy s growth promoting sectors.

Global capital markets would recognize that a country with high unemployment might choose to pursue an inflationary policy or a policy or exchange rate depreciation.

Furthermore, exchange rate movements are essentially determined by financial flows and may have no effects in terms of correcting global trade imbalances.

One such implication is that developing countries will have to substitute real industrial policies for those that operate through the exchange rate. Another is that external policy actors (for example, the World Trade Organization) will have to be more tolerant of these policies as long as the effects on trade balances are neutralized through appropriate adjustments in the real exchange rate.

One such implication is that developing countries will have to substitute real industrial policies for those that operate through the exchange rate.

Machinery uses a lot of electricity.