Floating Exchange Rates
It Has A Bibliography. Very extensive research -
Floating Exchange Rates: The Only Viable Solution
For some, the collapse of Mexico's economy proves that floating exchange rates and markets
without capital controls are deadly. Others find the crash of the European exchange-rate mechanism
(ERM) in 1993 to be proof that targeted rates will always be overturned by the free market. Many
see the breakup of Bretton Woods as the failure of fixed rates. Yet others believe monetary
unification in Europe is the only way to achieve economic and political stability. Many others hold still
different beliefs. There are, however, four main proposals for the management of international
currency exchange rates: monetary unification, fixed rates, floating rates maintained within certain
'reasonable' limits of variability and freely floating rates. Both fixed exchange rates and rates based
on either explicit or unwritten targeting are impossible to maintain, especially in an era of free trade.
Complete monetary unification would be impossible to bring about without extensive integration and
unification of international governments and economies, a task so vast that it is unlikely ever to be
accomplished. Thus, the only option central banks have is to allow exchange rates to float freely.
The European Monetary System, which virtually collapsed in 1993, was an attempt to fix exchange
rates within certain tight bands, to coordinate monetary policy between member nations and to have
central banks intervene to keep exchange rates within the bands when necessary. The reasons for the
collapse were myriad, but, simply put, it happened because Germany, dealing with financial problems
in part arising from its reunification, refused to lower its high interest rates. This meant other European
countries either had to keep their rates equally high and allow themselves to fall into recession as a
result, or devalue their currency against...
... the fixed exchange rate regime. For example, under Bretton Woods and the European Monetary System, one country’s currency served as the system’s anchor currency. Under Bretton Woods, from the late 1960s until the system collapsed, European governments ...
... will receive interest payments of the same value in real terms. For this decrease in risk, the floating rates are usually a little lower than fixed rates. In exchange for no inflation risk, the investor gives up two advantages to having ...
... the European Community (EC). 1.1.3. Collapse of the Bretton Woods System An international monetary system was established by the Bretton Woods Agreement in 1944. Bretton Woods Agreement provided a system of fixed exchange rates with all participating currencies pegged ...
How do you explain the rise and fall of the Bretton Woods system? and the creation of an optimal currency area?
... a fixed exchange rate. Their contributions are well known as the theory of "optimum currency areas". They also stressed that the economically desirable extent of common currency areas might not coincide with national borders. After the collapse of the Bretton Woods ...
Outline the main pillars of the Bretton Woods System and discuss how its architecture led to both post-war stability and prosperity in the developed world throughout the 'long-boom'.
... the European recovery from the war. The culmination of this meeting resulted in the Bretton Woods Agreement. Its function was to create an international monetary system of convertible currencies, fixed exchange rates along ...
... the international political economy, the planners at Bretton Woods developed such policies as a return to a fixed exchange rate, establishment of the International Monetary Fund and the International Bank ... the Bretton woods system. "No single nation's currency could ...
... introduced. Fixed exchange rates usually help combat inflation in two ways: by preventing a price increase in domestic currency and by signaling commitment to low inflation rates and ...
... irrevocably fixed exchange rates - or a common currency - require a common institutional framework to manage the common monetary policy ...