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These four periods have been characterized by a general — although not universal — move from fixed exchange rate systems to convertible pegs and finally to freely floating exchange rates. In the mid-1970s, almost 90% of emerging market countries had some form of fixed/pegged exchange rate. As of the end of 2001, this had fallen to 30%. It should be noted of course that this is still a high number and thus it remains important to examine the dynamics of fixed and pegged exchange rate systems, why they came about and their relevance in the modern world. Fixed or pegged exchange rate systems made sense for emerging markets during the 1970s and 1980s. For the most part, their involvement in the global economy was still relatively limited, for both political and economic reasons. Their financial systems were still for the most part in their infancy and certainly not able to cope, at least early on, with the harsh disciplines imposed by global financial markets. A credible anchor was needed for monetary policy and it was found in the form of the US dollar. The pegged exchange rate value between the US dollar and the emerging market currency became the anchor of monetary credibility. Sometimes these were hard pegs to the US dollar, sometimes they were “crawling pegs”, meaning that the peg value changed to reflect a gradual depreciation of the emerging market currency in line with its higher inflation rate. Others were pegged not to a single currency, but instead to a basket of currencies. In all cases, however, the exchange rate peg was the anchor of monetary credibility. What does this mean? A pegged exchange rate system implies a commitment by the financial authorities of a country to limit exchange rate fluctuation within the limits of the peg. At the macroeconomic level, the aim of this is to provide both stability and credibility. Atthe microeconomic level, it is to provide an implicit guarantee to the private sector of exchange rate stability.