Floating Exchange Rates Add to Economic Uncertainty

Economics Nobel Laureate Robert Mundell wrote in 1998 that the dollar-euro exchange rate would become “the most important price in the world”. Mundell, known as the father of the euro, was absolutely right. Since the euro was introduced the following year, the dollar-euro has been by far the most important currency pair in terms of transaction volume. It has also fluctuated widely – reaching 84 US cents per euro in 2000 and $1.59 in 2008. Today it is at par – a rate not seen in 20 years.

The exchange rates of the major currencies have not always been so volatile. The Bretton Woods Agreement of 1944 initiated a system of international exchange rate pegs and stability. What followed was a golden age of record-breaking achievements among the world’s advanced capitalist countries. But that global monetary system was abolished 29 years later by the unilateral action of the Nixon administration. What followed was an era of flexible, unstable exchange rates – like the great French economist Jacques de Larosiere referred to as the “anti-system” – in which the advanced economies experienced a dramatic slowdown in growth and a sharp acceleration in inflation.

https://www.wsj.com/articles/exchange-rates-float-beyond-parity-dollar-euro-monetary-system-bretton-woods-agreement-inflation-currencies-11659991140 Floating Exchange Rates Add to Economic Uncertainty

Alley Einstein

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