One of the most important macro-economic policy choices a government faces is the choice of exchange rate regime and associated monetary policy objectives. At one end of the spectrum, a government can choose to have a freely floating exchange rate, with monetary policy designed to achieve some explicitly stated goal. For instance, New Zealand pioneered an approach in which the independent central bank, operating with a floating exchange rate, was charged with maintaining annual inflation within a specified target range at all times.1 At the other end of the spectrum, a country can choose not to have an independent monetary and exchange rate policy at all. It can adopt another country’s currency as legal tender (as did Panama with the United States dollar) or else negotiate a common currency area, possibly with a federal currency arrangement.