Unexpected Real Consequences of Floating Exchange Rates

After a decade of floating exchange rates, international monetary reform is again in the air, and it is thus timely to ask how well (or badly) the current system is functioning. But compared to what? Because the current monetary arrangements came into effect following years of vigorous debate on the merits of exchange rate flexibility, some observers appear to forget that these arrangements were not in reality ‘adopted’, let alone ‘designed.’ 2 Rather, they were initiated by the collapse of the Bretton Woods regime and given markedly after-the-fact approval by an International Monetary Fund whose members were unable to agree upon an alternative, i.e. any system imposing even minimal restraints on the national policies of members. Since the present time seems no more propitious than the early 1970s for the willing sacrifice of national sovereignty by IMF members, 3 any argument for system reform must be solidly grounded in the accumulated experience of floating, not the dogmas of the Bretton Woods era. These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.