International monetary arrangements for the 21st century—Which way?

This paper examines some competing views on currency regime choice by applying the dynamic multi-state Markov (MSM) model to the regime transitions of 166 countries from 1980 to 1999. The findings suggest that the bipolar view is valid only in the long run and for a reason quite different from what the proponents had imagined, namely, economic development rather than crisis-driven exits. The estimated steady-state probabilities even predict that a unipolar fixed exchange rate system could emerge in the long run. Despite some divergence, both de jure and de facto regime data corroborate the key findings.