Commentary: Avoiding Currency Crises

The paper by Barry Eichengreen and Ricardo Haussman is correct to focus on the policies that the emerging market countries (EMC) themselves can pursue to reduce the risk of future economic crises, instead of discussing new policies for the IMF or for the industrial countries that some analysts hope might achieve that goal. I agree with their emphasis on EMC self-help and on the multiple causes of fragility and currency crises (Feldstein 1999a, 1999b). Indeed, I would stress that just a single fundamental structural policy error is sufficient to make a currency crisis inevitable, with the associated adverse effects on the domestic economy. Avoiding a crisis, therefore, means avoiding all such mistakes. Abad exchange rate regime, in particular, can make a currency crisis inevitable. But a good exchange rate regime is not enough to prevent a crisis.