Abstract:

What are the main determinants of exchange rate regime survival and collapse? In particular, what are the structures and institutions of domestic and international politics that best sustain the harder exchange fix arrangements (currency boards, dollarizations and monetary unions)? This dissertation examines the role played by political structures in determining the survival prospects of these harder regimes. Specifically, it looks at the relevance of state centralization, political fragmentation, democracy and bureaucratic capacity, at a domestic level; and anchor country strength and engagement at an international level. It looks at domestic and international levels jointly, arguing that they cannot be viewed in isolation as they determine the regime's survival prospects together. Further, it contextualizes the political analysis by combining it with existing political and economic theory in this area. After outlining the theoretical framework, the dissertation adopts an empirical approach, using duration models to assess the role of political and economic determinants of survival. The theory and the results of the statistical analysis then inform three case studies, in Argentina, Panama and the African "CFA" zone.

The analysis supports the importance of political structures alongside economic variables in determining the survival of harder regimes. The clearest support is for the importance of centralized powers at a domestic level and for the role of a strong and engaged anchor country sustaining the regime. It also provides support, but with qualification, for the role played by undemocratic structures, unfragmented politics and bureaucratic capacity. Finally, it provides clear evidence that factors at both domestic and international levels are important for fix survival and that it is the combined strength or weakness of these levels that ultimately determines the longer term prospects of any hard regime.

Policy issues permeate this study. A better understanding of the institutions that sustain a fix regime should allow policymakers to make a more informed decision about when it is most advisable to pursue this policy. Further, the analysis should assist scholars in better understanding not only exchange regime sustainability, but also the role that economics and politics jointly play in shaping successful exchange rate policy more generally.