Fixed Exchange Rates: The Thai Baht
Thailand, like many newly developing countries, closely links its currency to the U.S. Dollar. By tying their currencies to that of a low-inflation industrialized country with a reputation for price stability - such as the U.S., Japan, or Germany - developing countries limits their ability undertake discretionary monetary policies. The exchange rate then provides a visible check against inflation. In addition, fixed or stable exchange rates reduce the transaction costs associated with exchange rate volatility. This is particularly important to countries that rely heavily on international trade for economic growth, including Thailand.
Suggested citation: “Fixed Exchange Rates: The Thai Baht,” Federal Reserve Bank of Cleveland, Economic Trends, no. 97-09, pp. 19, 09.01.1997.