In search of an exchange rate policy for the dollar

Abstract

Following the collapse of the Bretton Woods system of fixed exchange rates in 1971, an agreement on the basic principles of a new exchange rate system could not be reached. Many monetary authorities continue to hope that it will ultimately be possible to reinstate a par value system, while others favour floating rates without any significant management. In 1975 a compromise that gives each country freedom to adopt the exchange rate arrangements of its choice was made. More recently, however, a large movement has occurred in the exchange rates of some major currencies, including the world’s trading and reserve currency, the dollar. The present article examines what has happened, how the working of the exchange rate regime could be improved, and what concrete measures commend themselves for the period ahead.

JEL: E42