Developing and transition economies have a wide variety of exchange rate arrangements, with a tendency for many but by no means all countries to move toward increased exchange rate flexibility ( Figure 2). Some medium-sized industrial countries also have market-determined floating rate regimes, while others have adopted harder pegs, including some European countries outside the euro area. In the current system, exchange rates among the major currencies (principally the U.S.В dollar, the euro, and Japanese yen) fluctuate in response to market forces, with short-run volatility and occasional large medium-run swings ( Figure 1). temporary official financing of payments imbalances, mainly through the IMF, would smooth the adjustment process and avoid unduly sharp correction of current account imbalances, with their repercussions on trade flows, output, and employment.private capital flows were expected to play only a limited role in financing payments imbalances, and widespread use of controls would prevent instability in such flows.This system aimed both to avoid the undue volatility thought to characterize floating exchange rates and to prevent competitive depreciations, while permitting enough flexibility to adjust to fundamental disequilibrium under international supervision exchange rates were fixed but adjustable.The exchange rate regimes adopted by countries in today's international monetary and financial system, and the system itself, are profoundly different from those envisaged at theВ 1944 meeting at Bretton Woods establishing the IMF and the World Bank. Developing Countries: Evolution of Pegged I.Д®xchange Rate Regimes for Major CurrenciesД®xchange Rate Regimes of Medium-Sized IndustrialД®xchange Rate Arrangements of Developing and TransitionД®conomies: Bilateral and Effective Exchange Rates, 1997/1вЂ“1998/4 While increased capital mobility has been leading an increasing number of countries to either end of the spectrum between firmly fixed rates (or monetary unification) and free floating, intermediate regimes are likely to remain viable and appropriate in many cases. Which exchange rate regime and associated policies are appropriate for a country depend on its particular circumstances.

Member countries continue to have scope to choose the type of exchange rate regime that best suits their needs, always with the proviso that the chosen regime must be credibly supported by policies consistent with the choice.

The main conclusion is that it remains true that there is no single exchange rate regime that is best for all countries in all circumstances. It is based on a recent IMF study, prepared by Michael Mussa, Paul Masson, Alexander Swoboda, Esteban Jadresic, Paolo Mauro, and Andrew Berg, which is now available in the IMF Occasional Paper series. These changes include the general increase in capital mobility and the abrupt reversals of capital flows to developing and transition economies. This brief considers the choice of an appropriate exchange rate regime-floating, managed or fixed arrangements-for individual countries in light of important changes that have taken place in the world economy in recent years. Exchange Rate Regimes in an Increasingly Integrated World

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