Exchange Rate Overvaluation and Currency Crises: Lessons from Latin America and East Asia

Abstract

In the aftermath of the currency crises of the 1990s there has been widespread discussion on the need to create a “new financial architecture.” The debate has been largely centered on grand schemes, such as the creation of a global lender of last resort, and the reform of some of the multilateral institutions, including the International Monetary Fund (IMF). Much of the official discussion has rapidly become highly bureau-cratized, focusing on formal procedures. In fact, in my view, one of the most interesting aspects of the 1999 Federal Reserve Bank of Chicago-Bank of International Settlements conference on “Lessons from Recent Global Financial Crises,” was the emphasis placed by so many participants on formality. Many, if not most, of the issues addressed revolved around questions such as: Which international committee has the authority to do what? When are the deputies getting together? How will the agenda be determined? This emphasis on formality is particularly frustrating to the emerging countries. After all, they rarely participate in the key committees, and are almost never consulted on the key reforms.