Globalization and exchange rate policy

Exchange rates are political. They affect the interests of powerful groups andvof consumers. They affect elections, and are affected by them. International economic integration only heightens their impact and their political prominence.

          As the world economy has become more open—and especially as developing countries have become more open—exchange rates have become even more highly politicized, more controversial, and more subject to mass and special-interest political pressures.

          Those who ignore the political economy of currency policy will make mistakes in developing feasible exchange rate policies. Both analysts and policy-makers would be well advised to pay concentrated attention to political economy factors in exchange rate policy-making.