David A. Steinberg
- Published in print:
- 2015
- Published Online:
- August 2016
- ISBN:
- 9780801453847
- eISBN:
- 9780801454257
- Item type:
- book
- Publisher:
- Cornell University Press
- DOI:
- 10.7591/cornell/9780801453847.001.0001
- Subject:
- Economics and Finance, Development, Growth, and Environmental
Exchange rate policy has profound consequences for economic development, financial crises, and international political conflict. Some governments in the developing world maintain excessively weak and ...
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Exchange rate policy has profound consequences for economic development, financial crises, and international political conflict. Some governments in the developing world maintain excessively weak and “undervalued” exchange rates, a policy that promotes export-led development but often heightens tensions with foreign governments. Many other developing countries “overvalue” their exchange rates, which increases consumers' purchasing power but often reduces economic growth. This book argues that the demands of powerful interest groups often dictate government decisions about the level of the exchange rate. Combining case studies of China, Argentina, South Korea, Mexico, and Iran with cross-national statistical analyses, the book reveals that exchange rate policy is heavily influenced by a country's domestic political arrangements. Interest group demands influence exchange rate policy, and national institutional structures shape whether interest groups lobby for an undervalued or an overvalued rate. A country's domestic political system helps determine whether it undervalues its exchange rate and experiences explosive economic growth or if it overvalues its exchange rate and sees its economy stagnate as a result.Less
Exchange rate policy has profound consequences for economic development, financial crises, and international political conflict. Some governments in the developing world maintain excessively weak and “undervalued” exchange rates, a policy that promotes export-led development but often heightens tensions with foreign governments. Many other developing countries “overvalue” their exchange rates, which increases consumers' purchasing power but often reduces economic growth. This book argues that the demands of powerful interest groups often dictate government decisions about the level of the exchange rate. Combining case studies of China, Argentina, South Korea, Mexico, and Iran with cross-national statistical analyses, the book reveals that exchange rate policy is heavily influenced by a country's domestic political arrangements. Interest group demands influence exchange rate policy, and national institutional structures shape whether interest groups lobby for an undervalued or an overvalued rate. A country's domestic political system helps determine whether it undervalues its exchange rate and experiences explosive economic growth or if it overvalues its exchange rate and sees its economy stagnate as a result.
