Lok Sang Ho

PBC's Proposal for International Monetary Reform

The key point is that countries that tie their currencies to the benchmark currency basket, with or without indexing against inflation, will be less influenced by exchange rate fluctuations caused by capital flow swings, which can be very damaging. I am not saying that all currencies can do this. Some currencies, particularly those from economies with greater financial market depth, should be allowed to float more freely, subject to monetary policy discretion. But other countries, those with shallower financial markets, can peg their currencies to the basket at levels that facilitate international trade.