Foreign Exchange Markets With Fiat Money: Fixed Exchange Rates

Arguments for Leaving the Gold Standard

While major trading countries abandoned fiduciary money when they went off the gold standard in the 1930s, they did not abandon fixed exchange rates. Imposition of fiat money was accompanied by government price-fixing in foreign exchange markets. Prior to examining these arrangements, two popular arguments for leaving the gold standard are examined.

Domestic Monetary Autonomy

One was that leaving the gold standard would give individual countries more latitude for conducting an independent monetary policy. The ideas of British economist J. M. Keynes were gaining popularity at the time. It was his contention that governments should ...

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