Are Exchange Rates Determinate

The decision-makers of the world have apparently never felt very comfortable with the idea of floating exchange rates. The current floating-rate system was not cooperatively planned and carefully introduced; rather, it was created through default as the Bretton Woods system fell apart in 1971-1973, with one country after another abandoning fixed parities. Numerous countries, however, continue to maintain fixed parities with respect to some major currency (or currencies). The repeated attempts to form a European Monetary System, or snake of fixed intra-European exchange rates, can be interpreted as a sign of mistrust of floating rates. So, too, can the periodic proposals for creation of a modified Bretton Woods system.