In the wake of the Asian crisis, the conventional wisdom asserted that a country should eschew fixed exchange rates in favor of either of the two extremes: a floating rate or a currency union. I agree with this “bipolar view” insofar as I think that a garden-variety fixed exchange rate is, in most instances, the worst of all worlds.
Notably, fixed exchange rates often result in irresistible one-way bets for speculators, with crisis and painful economic adjustment the likely result. Large holdings of foreign exchange reserves reduce this risk but create other costs. Currency unions are considerably less prone to speculative attack and may reduce uncertainty and transactions costs in international trade and finance.