Politics in a Tight Fix

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 work examines the role of political structures in determining the survival prospects of these harder regimes. 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. It contextualizes the political analysis by combining it with the existing political and economic theory. The study further adopts an empirical approach, using duration models to assess the political and economic determinants of survival. The theory and the statistical analysis then inform three case studies (Argentina, Panama and the African CFA zone). 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.