International Monetary System

But over the past twenty-five years the international monetary system has been subjected to one surprise after another, including greater and greater volatility in exchange rates and the potential for dramatic political and social consequences. The analysis which follows will first look generally at the role of speculative capital in the new international environment of floating or partially floating exchange rates. The discussion will then focus on a specific example of exchange rate volatility and its consequences, the 1994 devaluation of the Mexican peso. The analysis will conclude with some comments on exchange rates, current account deficits and the validity of macroeconomic measuremnts.

Fluctuating Exchange Rates: Their Importance and Brief History

With the growing international mobility of capital after 1970 it became increasingly clear that there were substantial stocks of capital that were prepared to move en masse from one currency

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llowing domestic policies consistent with that goal, a speculative attack that exhausts a country's foreign reserves is almost predictable. Peso Devaluation of 1994: A Case Study of This Process Mexican exchange rate policy after 1987 was geared primarily to an anti-inflation effort. The technique was to maintain the peso within a band with respect to the dollar, using market intervention for this purpose. The peso was devalued by small amounts daily but the cumulative depreciation did not compensate for the difference in inflation between Mexico and the United States (Weintraub, 1995). Thus, gradually the peso became overvalued. The deficit in the current account of Mexico's balance of payments also began to increase, but in recent years it was more than fully covered by capital inflows. Indeed, Weintraub (1995) estimated that in January of 1994 Mexico's net international reserves had reached $29 billion. However after the assassination of presidential candidate Luis Colosio, in March of 1994, Mexican reserves fell by more than $10 billion Then, in mid-1994 another $3 billion in reserves was lost because of charges of irregularities in preparation for the national elections in August of 1994. Finally, reserves tumbled
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Some common words found in the essay are:
Currency Crisis, April September, Mexico Mexico's, Bretton Woods, Mexican Treasury, Ruiz Massieu, Brief History, Process Mexican, Germany Subsequent, Colosio March, exchange rate, exchange rates, current account, weintraub 1995, krugman 1979, account deficit, current account deficit, 1995 mexican, rates current account, kraul 1995, floating exchange, exchange rates current, balance payments, turnaround current account, current account deficits,
Approximate Word count = 1596
Approximate Pages = 6 (250 words per page)

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