This essay by Dmitry Mukhin discusses how financial market frictions, foreign exchange intervention and fiscal policy shape the optimal design of exchange rates in open economies. The views expressed herein are those of the author and should not be attributed to MAS.

This paper provides the full proceedings of the 12th Asian Monetary Policy Forum held over 22–23 May 2025. The views expressed herein are the author’s and should not be attributed to the Monetary Authority of Singapore.

This study by Atif Mian was published as Special Feature A in the April 2025 Macroeconomic Review.