Fixed Economy vs Floating Economy
Chris Rudy
Issue analysis
4/29/20710
The global economy has expanded exponentially since the beginning of the 20th century. A very important issue that has come to develop in the last thirty years is the global economy more or less abandoned a fixed currency system and using the modern floating currency/exchange model in an attempt to regulate markets in the newly developed foreign market economy. But what effects, both positive and negative have there been in the adoption of a floating model compared to a fixed model? Is the global economy better off or worse off by this implementation? To really be able to analyze the issue it is important to know the background of this switch from a fixed to floating currency system, who are the big players in the floating currency system, the challenges or benefits that this system provides and what needs to be done to correct problems arising out of the use of floating currencies. To understand why the world uses a floating currency it is important to understand the history behind the issue. After World War II the leaders of the world’s industrialized nations met at a hotel in Bretton Woods, New Hampshire (Mingst 2008) and established a fixed currency rate that these industrialized nations would adhere to. There are a couple of reasons why the delegates that met at this time wanted a fixed international monetary system: one, the global depression was fresh on all the delegates’ minds, believing that a fixed currency rate would not only prohibit another global depression but as well be establishing global economic security; and two, the established international economic security would also provide a strong foundation for world peace (Hudson 2003). The fixed rate they agreed on would be set on a gold standard of 35 US dollars per ounce. that would have to be met by plus or minus one percent. The idea was that the gold standard would be adhered to easily by the developed, industrialized nations, and that the established
Issue analysis
4/29/20710
The global economy has expanded exponentially since the beginning of the 20th century. A very important issue that has come to develop in the last thirty years is the global economy more or less abandoned a fixed currency system and using the modern floating currency/exchange model in an attempt to regulate markets in the newly developed foreign market economy. But what effects, both positive and negative have there been in the adoption of a floating model compared to a fixed model? Is the global economy better off or worse off by this implementation? To really be able to analyze the issue it is important to know the background of this switch from a fixed to floating currency system, who are the big players in the floating currency system, the challenges or benefits that this system provides and what needs to be done to correct problems arising out of the use of floating currencies. To understand why the world uses a floating currency it is important to understand the history behind the issue. After World War II the leaders of the world’s industrialized nations met at a hotel in Bretton Woods, New Hampshire (Mingst 2008) and established a fixed currency rate that these industrialized nations would adhere to. There are a couple of reasons why the delegates that met at this time wanted a fixed international monetary system: one, the global depression was fresh on all the delegates’ minds, believing that a fixed currency rate would not only prohibit another global depression but as well be establishing global economic security; and two, the established international economic security would also provide a strong foundation for world peace (Hudson 2003). The fixed rate they agreed on would be set on a gold standard of 35 US dollars per ounce. that would have to be met by plus or minus one percent. The idea was that the gold standard would be adhered to easily by the developed, industrialized nations, and that the established
Cited: Galvo, G, and C Rienhart. "Fear of Floating." Quarterly Jounal of Economics, 2002: 379-408. Hudson, Micheal. Super Imperialism: The Origin and Fundamentals of U.S. World Dominance, 2nd ed. London: Pluto Press, 2003. Levy-Yeyati, E, and F Sturzenegger. "Classifying Exchange Rate Regimes: Deeds vs. Words." European Economic Review , Volume 49, Issue 6, 2005: 1603-1635. Mingst, Karen. Essentials of International Relations. New York, London: W.W. Norton and Company, 2008. Watchel, Cliff. SeekingAlpha.com. April 19, 2010. http://seekingalpha.com/article/199378-2010-s-four-most-liquid-currencies-short-and-long-term-prospects-for-remainder-of-2010 (accessed april 25, 2010).