Exchange rate policies in developing countries

Since the early 1970s a large proportion of LDCs have experienced substantial balance of payments difficulties arising from greater turbulence in the world economy. Most have therefore found it necessary to initiate economic adjustments to restore balance of payments viability, which have frequently entailed changes in their rates of exchange. But the collapse of the Bretton Woods system of fixed exchange rates in the early 1970s, and the resultant floating of the major currencies, has made the task of LDC exchange rate management more complex. In the present system the major currencies have undergone large fluctuations against each other, and an LDC must now pursue a more flexible exchange rate policy than in the fixed exchange rate world, if it is to avoid losing international competitiveness.