The pegging of exchange rates to the dollar affects the exchange rate of third countries away from fundamentals. In emerging market economies with flexible exchange rates and open capital accounts, large capital inflows have pushed up their exchange rates, in some cases into overvaluation territory (for example, in Latin America).
The insufficient adjustment of exchange rates and of macroeconomic imbalances may lead to disorderly policy reactions and encourage beggar-thy-neighbor policies. The way forward The priority for the international community is to avoid that current disequilibria degenerate in a disorderly adjustment. We need determined action in a number of fields. First and foremost, a rebalancing of global demand is key for a sustainable recovery.