As described above, the approach represented a simple determination that it was more critical to preserve low borrowing costs for the still-struggling domestic financial system and corporate sector than to defend the exchange rate. This currency neglect was particularly injurious when the US Fed was still in active hiking mode. This situation added to US dollar demand and so pressured the baht lower. Furthermore, the currencies of key competitor economies Japan and Taiwan were weakening over the period. While in both the above cases policymakers accepted currency losses in the interest of some desirable outcome, problems arise in that there are definite and often economically debilitating costs when exchange rate instability is introduced.
Inflation picks up, at least in part as exports grow more expensive in local-currency terms.
Despite widespread criticism of its capital regime, the country also has managed to effect gradual liberalizations of that originally restrictive arrangement without suffering a tremendous drop in equity values. China and Hong Kong, on the other hand, remain USD-fixed at parities that prevailed before the Asian crisis, having opted for deflation over policy inconsistency as the lesser of evils. The benefits are not academic. But suggesting currency stability should follow growth overlooks the irreplaceable role of currency stability in promoting growth. The year 2000 did bring new initiatives, however.