Floating exchange rates, reciprocity and trade balance


The basis for reciprocal concessions in the process of multilateral trade liberalisation is firmly established for fixed exchange rate regimes. The move from fixed to flexible exchange rates suggests that commercial policy negotiations and indeed trade liberalisation itself can be divorced from balance of payments considerations. However, the full range of implications of floating rates for international trade and capital movements is still not fully understood. The paper discusses a number of significant issues that are likely to entangle the relationship between reciprocity in trade liberalisation and its consequences for trade balance in a regime of floating exchange. JEL: E42

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