The International Monetary System
The monetary and economic disorders of the past fifteen years… are a reaction to a world monetary system that has no historical precedent. We have been sailing on uncharted waters and it has been taking time to learn the safest routes.
MILTON FRIEDMAN WINNER OF NOBEL PRIZE IN ECONOMICS
LEARNING OBJECTIVES
- To explain the fundamental trilemma that affects the design of any exchange rate system
- To distinguish between a free float, a managed float, a target-zone arrangement, and a fixed-rate system of exchange rate determination
- To describe how equilibrium in the foreign exchange market is achieved under alternative exchange rate systems, including a gold standard
- To identify the three categories of central bank intervention under a managed float
- To describe the purposes, operation, and consequences of the European Monetary System
- To describe the origins, purposes, and consequences of the European Monetary Union and the euro
- To identify the four alternatives to devaluation under a system of fixed exchange rates
- To explain the political realities that underlie government intervention in the foreign exchange market
- To describe the history and consequences of the gold standard
- To explain why the postwar international monetary system broke down
- To describe the origins of and proposed mechanisms to deal with the various emerging market currency crises that ...
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