gold standard (fixed exchange rate)- value of currency was determined by amount of gold. the rate of exchange did not vary with changes in demand or supply of currency.it worked pretty well until world war 2.
bretton woods agreement- from the international conference held in Bretton Woods, New Hampshire in 1944, countries decided to pegg their currency to the USD and the USD was pegged to gold. USD was convertible to gold on demand at $35 USD per ounce,this was what led to the creation of the international monetary Fund(IMF). The downside ws that the price of gold keeps going up and the countries could only get $35USD per ounce of their gold. Fort Norx is where US stored all their gold.
pegged exchange rate: many countries started to use fixed exchange rates (Pegged exchange rates). The pros are Protection from swings in exchange rate(if your currency gets too strong, it can weaken your economy),it discourages currency speculation and it appeals to people who equate the value of the currency with national prestige. The cons are; you are forced to adopt monetary policy with undesirable domestic effects to maintain exchange level and there is adverse effects on trading partners(it negtively affects other countries).
managed float- flexible exchange rates; the US stopped exchanging gold for USD in 1971. Countries allow the value of their currency to cange with demand and supply but nations occasionally intervene to smooth fluctuations. Exchange rates are determined by purchasing power parity and demand and supply. The pros are No direct intervention necessary to achieve equilibrium, allows economies to use monetary policy to stimulate growth or reduce inflation rather than fix exchange rate and protects a country from foreign inflationary pressures. The cons are it creates uncertainity in international trade and the exchange rate may adversely effect a country,s economy.
Dr. Stephanie Powers, "Exchange rate", Intro to Macroeconomics.(Lecture, Donald School of Business, Red Deer Alberta, Winter 2012)
- gold standard (fixed exchange rate)- value of currency was determined by amount of gold. the rate of exchange did not vary with changes in demand or supply of currency.it worked pretty well until world war 2.
- bretton woods agreement- from the international conference held in Bretton Woods, New Hampshire in 1944, countries decided to pegg their currency to the USD and the USD was pegged to gold. USD was convertible to gold on demand at $35 USD per ounce,this was what led to the creation of the international monetary Fund(IMF). The downside ws that the price of gold keeps going up and the countries could only get $35USD per ounce of their gold. Fort Norx is where US stored all their gold.
- pegged exchange rate: many countries started to use fixed exchange rates (Pegged exchange rates). The pros are Protection from swings in exchange rate(if your currency gets too strong, it can weaken your economy),it discourages currency speculation and it appeals to people who equate the value of the currency with national prestige. The cons are; you are forced to adopt monetary policy with undesirable domestic effects to maintain exchange level and there is adverse effects on trading partners(it negtively affects other countries).
- managed float- flexible exchange rates; the US stopped exchanging gold for USD in 1971. Countries allow the value of their currency to cange with demand and supply but nations occasionally intervene to smooth fluctuations. Exchange rates are determined by purchasing power parity and demand and supply. The pros are No direct intervention necessary to achieve equilibrium, allows economies to use monetary policy to stimulate growth or reduce inflation rather than fix exchange rate and protects a country from foreign inflationary pressures. The cons are it creates uncertainity in international trade and the exchange rate may adversely effect a country,s economy.
Dr. Stephanie Powers, "Exchange rate", Intro to Macroeconomics.(Lecture, Donald School of Business, Red Deer Alberta, Winter 2012)