IMF roles
The foreign institutional investor can create difficulties because of the size of its capital inflows into an emerging economy. This is because a large influx of foreign capital can affect the value of the domestic currency. If the value of the domestic currency "floats," then currency traders will pay less for the currency as its supply increases. If the value of the domestic currency is "pegged" or fixed to the value of a foreign currency, then an increase in the money supply will not be met with a change in i.e. lowering of the traded price of the currency. The greater the disparity between the fixed value of the currency and the perceived "true" value of the currency, the greater the potential for attacks on the currency by currency speculators.
I couldn't find that paragraph on that page (it's huge), but I did find this...
Quote:
Why Currency Crises Happen (JEC Study -- January 2002)
Major currency crises have been frequent in the last 10 years. Currency crises are caused, or at least enabled, by inconsistent monetary policy. There is a basis in economic theory for the "bipolar view" of exchange rates, which contends that the extremes of fixed and floating exchange rates are less likely to suffer currency crises than the middle ground of pegged exchange rates. Countries can reduce their chances of suffering currency crises by avoiding pegged rates.
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