So what should developing countries do about the exchange rate?
Theory suggests that any group of countries whose economic structures and trade linkages satisfy the requirements of an optimum currency area, in the sense of Mundell (1961), would be well served by fixing the exchange rates among their currencies or, even better, by forming a currency union.4 However, in practice, empirical analyses have generally been unsuccessful at identifying multi-country regions of any size that meet the criteria for an optimum currency area.