Exchange rates — REER logic may be unsustainable

The Hindu Businessline

Perhaps the most sustainable `pricing policy for dollars’ (to rename exchange rate policy) will be that based on `transaction cost’ adjusted PPP. `Transaction costs’ here include the transport and insurance costs, costs of inventory, hidden costs of differential controls and restrictions, labour law and other legal rigidities, lax administration and infrastructure, and, of course, the inertia of the people to migrate, or change their consumption habits. Maybe it is time we moved away from managed pegs and managed REERs.