A proposed monetary regime for small commodity exporters : peg the export price ("PEP")

On the one hand, the big selling points of floating exchange rates - monetary independence and accommodation of terms of trade shocks - have not lived up to their promise. On the other hand, proposals for credible institutional monetary commitments to nominal anchors have each run aground on their own peculiar shoals. Rigid pegs to the dollar are dangerous when the dollar appreciates. Money targeting does not work when there is a velocity shock. CPI targeting is not viable when there is a large import price shock. And the gold standard fails when there are large fluctuations in the world gold market. This paper advances a new proposal called PEP: peg the export price. Most applicable for countries that are specialized in the production of a particular mineral or agricultural product, the proposal calls on them to commit to fix the ....(International Finance / SWP)