Exchange rate and monetary policies: the dilemmas faced by countries with peripheral currencies.

Summary Peripheral countries have specificities in the dynamics of their exchange rates and interest rates and in the conduct of their economic policy that are not generally considered by orthodox economic theory. This thesis argues that these specificities derive, in particular, from an asymmetry characteristic of the global economic configuration, namely, monetary asymmetry. The International Monetary System is hierarchical according to the capacity of each of the national currencies to perform the functions of money at the international level. According to the capacity (or inability) to perform their functions in the international arena, currencies are (or are not) holders of what is called in this thesis "currency liquidity." This international liquidity of currencies directly influences the characteristics of their demand. In the case of peripheral currencies (internationally illiquid), this demand requires a premium for the illiquidity of the currency (or of the asset denominated in that currency), which determines higher interest rates than those in the central countries. Moreover, this demand will be more or less sensitive to the level of confidence of global agents (or to the international preference for liquidity), which will determine the stability or instability of capital flows to these countries. Any instability in these flows exerts a pressure that tends to increase the volatility of exchange rates and, given the importance of this rate in the peripheral countries, to cause major problems for the conduct of their national economic policy.