Some countries undergoing exchange-rate-based stabilization and financial liberalization in Latin America, Asia and elsewhere have faced large capital inflows since 1991. Many have tried to sterilize the reserve inflows. Calvo, Leiderman, and Reinhart argue essentially that sterilization is more...

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...