Floating Exchanges Systems
Currencies are valued in terms of other currencies, not in terms of gold – this is under the floating exchange system.
The two world wars brought about social upheavals, in the early 20th century also rapid inflation and the reason, which made the gold a standard operable – the destruction of the setting. During the two wars, a lot of countries selected to opt for floating exchange systems until their economies returned to the point at which in light of the fact that, if a currency drifted too far outside its band and could not be contained by central bank intervention, the country was allowed to adjust its peg by setting a new exchange price and also to temporarily abandon the gold standard.
Three aspects of the system were there, and they are: increasing international capital mobility, constant exchange rates and autonomous domestic economic policies. Thanks to the existence of Bretton Woods, this did not stop states from using domestic economic policy such as manipulating interest rates under the gold standard, for example. As well as or domestic reasons – their long-term effects on the exchange rate.
The central banks finally began to convert their dollars to gold and this is because the instability brought about by the Vietnam War. In 1974 the Bretton Woods System of adjustable pegs was officially abandoned and the Jamaica Agreement basically allowed the presence of any exchange system a country chooses (Aliber, 52). o halt the loss of gold, in 1971 Nixon “closed the gold window” by refusing to provide gold to foreign dollar holders (Eichengreen, 133).
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