the rules of the game (classic gold standard)
under the gold standard, a country's money supply was limited to the
amount of gold held by its central bank; each country set the rate at
which its currency unit (paper or coin) could be converted to a given
weight of gold (fixed exchange rate)...
✓ advantages: stability in prices, higher international trade, no inflation
✓ disadvantages: central banks must maintain large quantities of
international reserves, fixed rates may be maintained at rates that are
inconsistent with economic fundamentals
flexible exchange rates
✓ allow the exchange rate to change as a nation's economy changes
and as its trade relationships and balances evolve
de facto, de jure, ex post
✓ the de facto system is a country's actual exchange rate practices. this
may or may not match the de jure system, which is the official system;
today the IMF classifies currencies on the basis of ex post analysis -
observed behavior, not on official govt policy pronouncements
hard pegs
✓ countries that give up their own sovereignty over monetary policy,
instead adopting other countries' currencies
soft pegs
Master01 | October, 2024/2025 | Latest update
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