Journal Article

The mechanics of a successful exchange rate peg: lessons for emerging markets

Abstract: To the surprise of many market watchers, Thailand?s exchange rate peg to the dollar collapsed in July 1997, leading to similar rounds of currency devaluations in other East Asian countries. This study seeks to determine whether there were identifiable contrasts in implementation between Thailand?s peg and a perennially successful peg?Austria?s peg to the Deutsche mark?that would have hinted at problems for Thailand prior to July 1997. The comparison suggests that Thailand was not sufficiently vigilant about keeping its inflation rate low in the early 1990s. By 1995, Thailand faced a situation where a tight monetary policy involving high domestic interest rates would not always have created disinflationary pressure, as high interest rates also tended to attract greater capital inflow to Thailand. In this environment, Thailand?s monetary policy became erratic and failed to maintain the exchange rate peg.

Keywords: Foreign exchange rates; Thailand;

Bibliographic Information

Provider: Federal Reserve Bank of St. Louis

Part of Series: Review

Publication Date: 2001

Volume: 83

Issue: May