The role of the exchange rate in the growth of emerging countries

The 1990's were marked by a spectacular surge in emerging economies. The paper adresses the main characteristics of their exchange rate and convertibility regimes, and analyses the consequences of theses regimes on the countries' macro-economic equilibrium. More flexible regimes, and to a lesser extent the reduction of convertibility restrictions, seem to have underpinned the markets development. In the last three years, this seems to have induced a harmonization of real exchange rates movements. There is a clear trend of real appreciation of the currencies against the dollar. Countries also experienced excessive inflows of capital, beyond their financing needs. They hence lost their ability to use the exchange rate as an instrument of economic policy, with sometimes very negative consequences (most noticeable in the case of Mexico).