CHAPTER 7

Proposals Advanced by Critics of Flexible Exchange Rates

Analysis in this book has focused on how foreign exchange markets work. From an analytical standpoint, individual exchange rate regimes generally cannot be separated from an underlying monetary standard. Four different exchange rate regimes and associated monetary standards have been discussed.

1. Foreign exchange markets with commodity money.

2. Foreign exchange markets with fiduciary money.

3. Foreign exchange markets with fiat money: fixed exchange rates.

4. Foreign exchange markets with fiat money: flexible exchange rates.

We currently live in a world of fiat money. For the United States, use of this type of money is a relatively new phenomenon. It dates from 1933 when it ...

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