Between two poles: A dual currency board for Mercosur

The paper explores exchange rate options for Mercosur countries. We start from the observation that most of the countries in the region have a long-standing tendency for fixed exchange rates, and ask how such a system could best be designed. The Argentine crisis has demonstrated that single currency pegs imply the risk of serious misalignments with other trading partners and could undermine regional integration initiatives. The standard basket peg is not a solution because of its limited transparency and credibility. We, therefore, discuss a proposal for dual currency boards that could be a workable solution for Mercosur countries.