Monetary Policy Case Study

Currency Pegging

OR

Abstract:
From 1870 to 1914, countries all over the world followed the gold standard system, where all the currencies were linked to gold. After World War II, the Bretton Woods system was introduced, where all the currencies were fixed against the US dollar. In 1971, the Bretton Woods system was abandoned because of wide spread inflation all over the world. Most of the developing countries continued to peg, either to the US dollar or to the French franc. By the late 1970s, many countries had shifted from single currency pegs to pegs defined in terms of basket of currencies. After the Asian crisis of 1997-1998, many countries like Russia, Brazil, Ecuador, Thailand and Korea shifted from a pegged exchange rate system to the floating rate system. Whereas countries like China, Malaysia and Bolivia continued with the pegged system.

Pedagogical Objectives:

To discuss the meaning, efficacy and ramifications of having a fixed exchange rate system and a floating exchange rate system.

Keywords : Currency pegging, Bretton Woods system, Basket of currencies, Special drawing rights, Pegged exchange rates, Bank Negara, Malaysian dollar ringgit, Convertibility Law, Domingo Cavallo, Monetary Policy Case Study, South American countries, Fiscal deficits, Monetary and fiscal policies, People's bank of China, World Trade Organisation, Foreign currency reserves