Fixed International Currency Rates : An analysis

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 twotiered price for gold were successful, the US and the other major western industrial countries abandoned the fixedrate currency exchange system, and allowed their currencies to float, or seek their own exchange rates, on the international currency exchange markets.

The flexiblerate currency exchange system was implemented in the early1970s. Since that time, the foreign exchange value of the dollar has

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diminish. When the international exchange value of the currency has diminished sufficiently, the demand for the country's exports will then increase; however, the decreased value of the currency will prevent a transfer of the higher prices to the importing countries. The reduction in demand for import to the US did not function exactly as theory predicted, because some foreign manufacturers, mostly Japanese, maintained prices in the American market in the face of the declining international exchange value of the dollar, as a means of retaining market share. Nevertheless, even this action precluded the international transmission of inflation. The argument for retaining the floating exchange rate system appears to be strong. The system, even with market interventions by the Federal Reserve, has significantly reduced the threat to the country's gold supply. The international transmission of inflation has been neutralized and the system has permitted the country to continue to attract the level of foreign capital required to fund its governmental budget deficits, without at the same time, reigniting double digit inflation. THE POSITION FAVORING TO A RETURN TO FIXED EXCHANGE RATES
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Some common words found in the essay are:
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Approximate Word count = 1730
Approximate Pages = 7 (250 words per page)

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