The purpose of this research is to examine the question: should the United States (US) return to a system of fixed international currency exchange rates? Both the pro and the con positions are addressed in this research.
THE POSITION OPPOSED TO A RETURN TO
FIXED EXCHANGE RATES
At the outset of this discussion, it must be understood that the US cannot unilaterally discard the floating exchange rate system, and return to a system of fixed rates. The system to be used must be acceptable to all of the participating countries, unless, of course, one country is both willing and capable of defending a fixed exchange rate for its currency in the face of a system which neither recognizes nor supports such a rate.
As a consequence of the declining value of the dollar in international currency exchange markets, and a continuing and increasing drain on the country's monetary gold supply, President Nixon devalued the dollar, increasing the conversion value of gold. When neither this action nor the following two tiered price for gold were successful, the US and the other major western industrial countries abandoned the fixed rate currency exchange system, and allowed their currencies to float, or seek their own exchange rates, on the international currency exchange markets.
The flexible rate currency exchange system was implemented in the early 1970s. Since that time, the foreign exchange value of the dollar has been allowed to float, with specific instances of intervention in the markets to influence both the level and direction of movement of the exchange rate. To be sure, the maintenance of high real interest rates in the US, together with other actions taken by both the Federal Reserve and the Treasury, were efforts made by this country to maintain a high foreign exchange rate for the dollar during the early 1980s, just as alternative policies have been employed since, i...