Democratic Institutions and Exchange Rates 75 institutions on exchange-rate commitments during the interwar period.16 He finds no systematic relationship between proportional representational systems and exchange- rate regime choice.Instead,the severity of societal cleavages affected the ability of the state to maintain its commitment to the gold standard. One reason that the relationship between domestic political institutions and exchange-rate commitments is unclear stems from the fact that these arguments do not focus explicitly on politicians'incentives.Politicians and parties face political incentives-in particular,reelection-that condition their choice of exchange-rate arrangement.These political incentives,in turn,reflect the configuration of domestic political institutions.Domestic electoral and legislative institutions strongly influ- ence how politicians balance their own needs with the demands of economic and societal actors in the choice of exchange-rate regime.Consequently,we predict a relationship between the configuration of domestic political institutions and the choice of exchange-rate arrangement,even after controlling for international systemic and economic influences. Domestic Political Institutions and Exchange-rate Arrangements We argue that domestic political institutions influence politicians'incentives over the choice of an exchange-rate regime.We begin with the assumption that politicians in the governing party(ies)have an interest in maintaining their position in office.By serving in office,the governing party(ies)have the ability to control both public policy and particularistic policies,which,in turn,enhance their reelection fortunes. An exchange-rate commitment,although it may help stabilize the external trading environment or achieve certain macroeconomic policy goals,limits politicians'dis- cretion over monetary policy,especially in an era of capital mobility.The configura- tion of domestic political institutions affects the willingness of governing party(ies) to give up discretion over macroeconomic policy.In particular,we argue that the electoral system and legislative institutions condition the choice of exchange-rate regime. First,the decisiveness of the electoral system influences the need of the governing party(ies)to maintain discretion over macroeconomic policy.Majoritarian electoral systems tend to"manufacture"single-party majority governments.17 In these sys- tems changes in a relatively small number of votes can actually lead to large swings in the distribution of legislative seats and,potentially,a change in the governing party.Consequently,politicians in the governing party(ies)will wish to maintain full control over any policy instrument that may help to secure their electoral majority.In particular they want to retain the ability to manipulate monetary policy in the run-up to an election or to appeal to key swing constituents.Since an exchange-rate commit- 16.Eichengreen 1992b. 17.Lijphart 1984.Democratic Institutions and Exchange Rates 75 institutions on exchange-rate commitments during the interwar period.16 He finds no systematic relationship between proportional representational systems and exchange￾rate regime choice. Instead, the severity of societal cleavages affected the ability of the state to maintain its commitment to the gold standard. One reason that the relationship between domestic political institutions and exchange-rate commitments is unclear stems from the fact that these arguments do not focus explicitly on politicians' incentives. Politicians and parties face political incentives-in particular, reelection-that condition their choice of exchange-rate arrangement. These political incentives, in turn, reflect the configuration of domestic political institutions. Domestic electoral and legislative institutions strongly influ￾ence how politicians balance their own needs with the demands of economic and societal actors in the choice of exchange-rate regime. Consequently, we predict a relationship between the configuration of domestic political institutions and the choice of exchange-rate arrangement, even after controlling for international systemic and economic influences. Domestic Political Institutions and Exchange-rate Arrangements We argue that domestic political institutions influence politicians' incentives over the choice of an exchange-rate regime. We begin with the assumption that politicians in the governing party(ies) have an interest in maintaining their position in office. By serving in office, the governing party(ies) have the ability to control both public policy and particularistic policies, which, in turn, enhance their reelection fortunes. An exchange-rate commitment, although it may help stabilize the external trading environment or achieve certain macroeconomic policy goals, limits politicians' dis￾cretion over monetary policy, especially in an era of capital mobility. The configura￾tion of domestic political institutions affects the willingness of governing party(ies) to give up discretion over macroeconomic policy. In particular, we argue that the electoral system and legislative institutions condition the choice of exchange-rate regime. First, the decisiveness of the electoral system influences the need of the governing party(ies) to maintain discretion over macroeconomic policy. Majoritarian electoral systems tend to "manufacture" single-party majority governments." In these sys￾tems changes in a relatively small number of votes can actually lead to large swings in the distribution of legislative seats and, potentially, a change in the governing party. Consequently, politicians in the governing party(ies) will wish to maintain full control over any policy instrument that may help to secure their electoral majority. In particular they want to retain the ability to manipulate monetary policy in the run-up to an election or to appeal to key swing constituents. Since an exchange-rate commit- 16. Eichengreen l992b. 17. Lijphart 1984