Now we have looked at some of the forces operating on the exchange rate, we can ask: “Would an earlier float of the exchange rate have avoided these problems?” With hindsight, it is hard to argue against this view - the actual path proved unsustainable, so any alternative looks attractive.
But this does not tell us whether the alternative would, in fact, have handled the situation more satisfactorily: for this, we would need to sketch out what the exchange rate path over time would have been under this alternative scenario. Given the capital-transfer process underway, how much would the exchange rate be expected to appreciate?