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Maintain the External Balance of the Metallic Standard

External balance of the metallic standard implies that the fixed exchange rate is maintained. The most important variable that may prevent the maintenance of the fixed exchange rate is the current account [more…]

The Interdependence of Macroeconomic Conditions under a Metallic Standard

Maintaining internal and external balance is challenging under a metallic standard. In addition to the difficulty of maintaining the internal and external balance, a metallic system has other challenging [more…]

The Trilemma under Any Fixed Exchange Rate Regime

The trilemma is a three-faceted dilemma faced by small and open economies under any fixed exchange rate regime. (A small economy is an economy that cannot influence the world interest rate. An open economy [more…]

The Bimetallic Era (until 1870) of Currency

Although the gold standard dates back to 1821 in the United Kingdom as a legal institution, until the early 1870s, many countries had a bimetallic standard by pegging their currency to both silver and [more…]

Gold Standard of the Pre–World War I Era (1870–1914)

The period 1870–1914 is considered the heyday of the international gold standard. The reason for the successful maintenance of fixed exchange rates for about four decades is that internal balance generally [more…]

The Currency Standard of the Interwar Years (1918–1939)

As in the case of other wars, governments suspended the gold standard during World War I, to increase the money supply and pay for the war. Therefore, as in the case of all post-war eras, many countries [more…]

The Impact of the Bretton Woods Conference in 1944

In July 1944, more than 700 delegates from 44 nations attended the United Nations Monetary and Financial Conference in Bretton Woods (New Hampshire), which later became known as the Bretton Woods Conference [more…]

Reserve Currency System Established at the Bretton Woods Conference

The reserve currency system that was established at the Bretton Woods conference is a version of the gold standard. In this system, one of the world currencies is identified as the reserve currency, and [more…]

International Monetary Fund: Manager of Fixed Exchange Rates

The International Monetary Fund (IMF)’s Articles of Agreement implied both discipline and flexibility, to avoid the mistakes of the interwar period. The discipline part of the agreement implied that the [more…]

Dollar Shortage and the Marshall Plan (1947)

In the immediate aftermath of the Bretton Woods Conference, the problem of a dollar shortage emerged. During the late 1940s, the U.S. was running large current account surpluses, and its gold reserves [more…]

The Decline of the Bretton Woods System (1950s and 1960s)

As early as 1950, the U.S. current account balance showed a deficit. Until John F. Kennedy won the presidential election in 1960, the U.S. response to the increasing current account deficit was to introduce [more…]

The End of the Bretton Woods System (1971–1973)

While the U.S. remained insistent on continuing its mission described by the Bretton Woods system, the world was changing. Throughout the 1960s and 1970s, important structural changes were taking place [more…]

Hard Currency Pegs

Dollarization and currency boards are among the examples of hard pegs, which severely limit the possibility of an autonomous (independent) monetary policy in a country. Therefore, sometimes the exchange [more…]

Introduction of the Euro

The euro was introduced as an accounting unit in 1999 and as currency in circulation in 2002. But the emergence of the common currency was based on almost half a century of discussions and preparations [more…]

European Monetary System (EMS) and the European Monetary Union (EMU)

In the case of euro, the European Monetary System (EMS) and the Economic and Monetary Union (EMU) reflect preparation periods during which countries in the common currency area are ready to use the common [more…]

European System of Central Banks (ESCB) and European Central Bank (ECB)

In 1998, the European Central Bank (ECB) was established under the European System of Central Banks (ESCB). The ESCB includes the ECB and the national central banks [more…]

Accomplishments and Challenges of the Euro-Zone

Since its introduction in 1999, the euro has accomplished many positive milestones: The most obvious benefit of adopting a single currency is to remove the transaction cost of exchanging currency. Consumers [more…]

How the Euro Stands Up to Other Currencies

Since its introduction in 1999, the euro has become one of the major reserve currencies, along with the dollar, the Japanese yen, the pound sterling, and the Swiss franc. [more…]

What the Future Holds for the Euro

Considering the sovereign debt crisis of the early 2010s, the European Union (EU) and the Euro-zone are facing formidable challenges. This crisis has sparked questions regarding the long-term viability [more…]

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