Rigid exchange rate regimes may enhance monetary policy credibility and lower inflation with little costs particularly in countries with low exposure to international capital movements. But as a recent IMF study indicates, these economies are often developing countries. Nevertheless, in emerging economies with relatively large financial markets and large capital movements, rigid exchange rate systems might be quite a risky choice.
As we have seen, fixed and other rigid exchange rate regimes are highly vulnerable to sudden capital outflows and crises. Especially if the domestic fundamentals are not perfect. Nowadays many emerging market countries have chosen a regime where the currency floats but the authorities, in practice, still target an exchange rate level.