Soft peg regimes : sensitivity to crises and performance

In this thesis, soft peg regimes’ sensitivity to crises and performance are investigated after a brief review of exchange rate regimes and their historical evolutions. The currency crisis faced by emerging countries under adaptation of soft peg regimes in the 1990s and in the beginning of 2000s revealed the suspicions on soft peg regimes’ vulnerability to crisis. With the increased tendency of countries adaptation of floating regimes after abandonment of soft pegs, some arguments emerged inquiring the appearance of soft peg regimes in the literature. The Corner Hypothesis, which defends the disappearance of soft peg regimes and its counter argument The Fear Of Floating, which does not accept the disappearance and another argument The Basket, Band and Crawl Arrangements, which provides alternative soft peg regimes are analyzed in this thesis. However, soft peg regimes’ vulnerability to currency crisis should not be investigated without the emerging countries’ common characteristics, which can be counted as lack of sound financial and fiscal structure and strong institutional framework. At the end of this study, importance of strong financial and fiscal structure of countries to provide macroeconomic balances including exchange rate regime is mentioned.