What is the “right” exchange rate for a country receiving large capital inflows and likely to go on receiving them for a protracted period – perhaps a decade or more – before investment returns are reduced to “normal”?
This relates to the old issue of the “transfer problem” – how to bring about the current account deficit that is the real resources counterpart of the financial capital inflow. For this, the exchange rate probably has to appreciate from its underlying value. But how far?