History Fixed exchange-rate system

1 history

1.1 chronology
1.2 gold standard
1.3 bretton woods system
1.4 current monetary regimes

history

the gold standard or gold exchange standard of fixed exchange rates prevailed 1870 1914, before many countries followed bimetallism. period between 2 world wars transitory, bretton woods system emerging new fixed exchange rate regime in aftermath of world war ii. formed intent rebuild war-ravaged nations after world war ii through series of currency stabilization programs , infrastructure loans. 1970s saw breakdown of system , replacement mixture of fluctuating , fixed exchange rates.

chronology

timeline of fixed exchange rate system:

gold standard

the earliest establishment of gold standard in united kingdom in 1821 followed australia in 1852 , canada in 1853. under system, external value of currencies denominated in terms of gold central banks ready buy , sell unlimited quantities of gold @ fixed price. each central bank maintained gold reserves official reserve asset. example, during “classical” gold standard period (1879–1914), u.s. dollar defined 0.048 troy oz. of pure gold.

bretton woods system

following second world war, bretton woods system (1944–1973) replaced gold u.s. dollar official reserve asset. regime intended combine binding legal obligations multilateral decision-making through international monetary fund (imf). rules of system set forth in articles of agreement of imf , international bank reconstruction , development. system monetary order intended govern currency relations among sovereign states, 44 member countries required establish parity of national currencies in terms of u.s. dollar , maintain exchange rates within 1% of parity (a band ) intervening in foreign exchange markets (that is, buying or selling foreign money). u.s. dollar currency strong enough meet rising demands international currency transactions, , united states agreed both link dollar gold @ rate of $35 per ounce of gold , convert dollars gold @ price.

due concerns america s rapidly deteriorating payments situation , massive flight of liquid capital u.s., president richard nixon suspended convertibility of dollar gold on 15 august 1971. in december 1971, smithsonian agreement paved way increase in value of dollar price of gold us$35.50 us$38 ounce. speculation against dollar in march 1973 led birth of independent float, terminating bretton woods system.

current monetary regimes

since march 1973, floating exchange rate has been followed , formally recognized jamaica accord of 1978. countries still need international reserves in order intervene in foreign exchange markets balance short-run fluctuations in exchange rates. prevailing exchange rate regime in fact considered revival of bretton woods policies, namely bretton woods ii.