Foundations of Marcelo Diamand’s Multiple Exchange Rate Proposal

Abstract

In dialogue with the secondary literature, this paper presents the theoretical foundations of Marcelo Diamand’s proposal for multiple exchange rates as a response to the problem of growth under external constraints in relatively small and open economies with an unbalanced productive structure (UPS). This framework rests on three main pillars: 1) the principle of effective demand, emphasizing the central role of exports as an autonomous component of demand necessary for the development of increasing returns to scale; 2) a critique of the purchasing power parity theory as a determinant of the exchange rate; and 3) the exchange rate and fiscal dimensions of Diamand’s proposal, according to which public spending, as an autonomous component of demand, plays a key role in promoting exports.