Exchange rate and monetary policies: the dilemmas faced by peripheral currencies countries

Author(s)

Bruno Martarello de Conti

• Document type: Doctoral Thesis
• Press: Campinas, SP.
• Institution: Universidade Estadual de Campinas (UNICAMP). Instituto de Economia
• Defense date: 2011-02-16

Examining board members

Daniela Magalhães Prates; Dominique Plihon; Ricardo de Medeiros Carneiro; André Moreira Cunha; Robert Guttmann

• Advisor: Daniela Magalhães Prates

Abstract

Peripheral countries have a specific dynamics on their exchange and interest rates and on the conduction of their economic policy that are sometimes not considered by orthodox economic theory. This thesis proposes that these specificities originate mainly from an asymmetry that characterizes global economic configuration, the monetary asymmetry. The International Monetary System is hierarchised according to the ability of each national currency to fulfil classical money functions in the international sphere. Actually, it is the use (or non use) of a currency at the supranational level that determines if it possesses (or not) what is named in this thesis the "foreign exchange liquidity". And the liquidity of a currency or an asset denominated on this currency settles the characteristics of the demand for it. For peripheral currencies, this demand requires a prime for the illiquidity (in the international arena) of the currency (or asset), determining that their interest rates are usually higher than the ones verified in the central countries. Additionally, this demand have a higher sensibility to the global agents' confidence level (or to the "international liquidity preference"), influencing the stability of the capital that flows to these countries. Being unstable, these flows create a pressure over the exchange rates volatility, bringing about important difficulties on the conduction of national economic policies due to the centrality of these rates to the peripheral countries (AU)