An Analysis of Pergged Exchange Rate Regime Between Bhutan and India

This paper analyzes the applicability of the theory of optimumcurrency area to the pegged exchange rate regime betweenBhutan and India. Most of the optimum currency criteria holdtrue for Bhutan and India. The paper then analyzes theimplications of establishing a free-floating exchange rate. Itoutlines the negative consequences and concludes that thepresent system is optimal. Any attempt to deviate from it willcause economic uncertainties.