1. CLASSICAL GOLD STANDARD: (18751914)
EX. US 30= 1OZ GOLD, £6=1OZ GOLD→ US30= £6→US5=£1
♦ Highly stable exchange rates under the classical
gold standard provided an environment that was
conducive ：：：to international trade and investment.
♦ Misalignment ：：：：f exchange rates and
international imbalances of payment were
automatically corrected by the pricespecieflow
♦ The supply of newly minted gold is so restricted that
the growth of world trade and investment can be
hampered for the lack of sufficient monetary
♦ Even if the world returned to a gold standard, any
national government could abandon the standard. 2. Bretton Woods System 194519723
Was a dollarbased gold exchange standard.
The creation of the IMF and the World Bank.
The purpose was to design a postwar international
The goal was exchange rate stability without the gold
Under the Bretton Woods system, the U.S. dollar was
pegged to gold at $35 per ounce and other currencies
were pegged to the U.S. dollar.
Each country was responsible for maintaining its
exchange rate within ±1% of the adopted par value by
buying or selling foreign reserves as necessary.
3. The flexible Exchange Rate Regime: 1973 preset Flexible exchange rates were declared acceptable to the
♦ Central banks were allowed to intervene in the
exchange rate markets to iron out unwarranted
Gold was abandoned as an international reserve asset.
Nonoilexporting countries and lessdeveloped countries
were given greater access to IMF funds.
Triffen dilemma 特特特特特r paradox 特特
this is said to have caused the demise 特特( ) the dollar
basedgold system and
it is now cited as the possible reason for the search for
another reserve currency other than the dollar
Maybe the SDR ??
♦ This basket consisted initially of 16 currencies and
was reduced to 5 in 1981. Every five years the IMF
determines which five currencies will enter the
basket, and which weight will be applied to each
currency. January 2006 December 2010
ISO Currency Weight Value
USD US Dollar 44%
EUR European Euros 34%
JPY Japanese Yen 11%
GBP British Pound 11%
5. Current Exchange Rate Arrangements
The largest number of countries, about 48, allow market
forces to determine their currency’s value.
About 25 countries combine government intervention
with market forces to set exchange rates.
Pegged to another currency
Such as the U.S. dollar or euro (through franc or mark).
No national currency
Some countries do not bother printing their own, they
just use the U.S. dollar. Ecuador, Panama, and El
Salvador have dollarized.