Exchange rate pegs collapsed in many countries in the 1990s, leading to dreary assessments of the merits of pegged exchange rate regimes. Whether one points to the failure of Mexico's peg in December 1994 or to the sharp devaluations in East Asia in 1997-98, in Russia in August 1998, and in Brazil in January 1999, the collapse of unilateral exchange rate pegs often preceded acute financial and macroeconomic crises. Despite recent failures, however, exchange rate pegs remain a prevalent policy choice. Calvo and Reinhart (2000) argue that the exchange rate volatility that ...

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