Debt and exchange rate vulnerability
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Muslim-majority nations like Turkey, Indonesia, Egypt and even Malaysia have seen their currencies depreciate and come under pressure in the recent past. Turkey and Egypt have had to increase domestic interest rates substantially to ease the exchange rate pressure. Indonesia, too, had to raise rates, albeit of a much lower magnitude. The choice of an exchange rate policy - whether pegged, free floating or managed - depends on the trade-off preference. Fixed or pegged exchange rates offer stability, but this has to be traded off against the lack of independence in monetary policymaking. A freely floating currency has the advantage of providing full flexibility in policymaking, but has to be traded off against the lack of exchange rate stability. Faced with these trade-offs between fixed and free floats, many countries chose to be in between the two, with managed floats.
Debt , Exchange rate vulnerability , Currency
Bacha, O. I. (2019). Debt and exchange rate vulnerability. In The Malaysian Reserve, (19 August 2019).
TMR Media Sdn Bhd
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