But if the correct lessons are to be taken from the crisis, then those countries which do not have strong reasons to go to a hard fix should move decisively away from “fixed-but-adjustable”, to adopt a version of what has become widely-used best practice: allowing the market to determine the rate, leaving considerable volatility (ie not leaning against the wind through frequent intervention), and even when the rate moves significantly away from what are judged to be the “fundamentals”, being prepared to put up with this, and stay the resort to intervention, until the case is overwhelming and the prospect of success good.
Interest rate changes in support of the exchange rate are a legitimate part of this regime, while acknowledging that feasible interest rate settings may not be enough to counter extreme market pessimism. This is clearly distinct from the totally passive position of a free float (“benign neglect”), but it is what is generally done in most developed countries.