^*Stanley Fischer is the governor of the Bank of Israel. This paper was presented as the Mundell-Fleming Lecture at the Eighth Annual Jacques Polak Research Conference at the IMF on November 14, 2007. The author is grateful to Thierry Tressel, Cigdem Akin, Meital Graham, Prachi Mishra, Inci Ötker-Robe, and Jeromin Zettelmeyer for assistance, and to Mark Allen, Jeff Frankel, Morris Goldstein, Ken Rogoff, and Shakour Shaalan for helpful discussions.

Abstract

This paper draws together some lessons and questions about exchange rate systems and attempts to state what is known and what is not known about them. It begins by revisiting the bipolar issue with regard to exchange rates, restating the hypothesis and updating it in light of events of this decade, arguing that the bipolar view is fundamentally correct for emerging market and industrialized countries with open capital accounts. It also examines the choice of exchange rate regime for countries with capital accounts that are not open, and managed floating regimes and exchange market intervention for countries with open capital accounts. Concluding remarks provide comments and advice for IMF surveillance.