Incomplete Markets in Foreign Exchange and Asymmetric Financial Integration

‘Getting the prices right’ is the basic tenet of the development strategy of less developed countries and for restructuring the former Soviet Bloc economies. The main policy instrument for development and structural change is liberalisation of the market for goods, labour and finance in order to align relative domestic prices more closely with international ones. The link between domestic and international prices is the exchange rate, which should be set at the market-clearing level through liberalisation of the foreign exchange regime.