Read e-book online Balance-of-Payments Theory and the United Kingdom Experience PDF

By A.P. Thirlwall

ISBN-10: 0333343077

ISBN-13: 9780333343074

ISBN-10: 1291311327

ISBN-13: 9781291311327

ISBN-10: 134906534X

ISBN-13: 9781349065349

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It was to overcome these features of the international economy of the 1930s which led to the Bretton Woods agreement and the establishment of the International Monetary Fund in 1944. K. Experience (ii) The Adjustable Peg or Par-Value System The agreement at Bretton Woods in 1944 re-established fixed (but adjustable) exchange rates between currencies in the form of so-called 'par values', defined in terms of gold. Countries were obliged to intervene in the market to maintain the exchange rate within I per cent either side of its par value.

It stands at the other end of the spectrum to the rigidly fixed parities of the old gold standard, and probably neither of these extremes will ever be adopted in the future. FIXED VERSUS FLEXIBLE EXCHANGE RATES The exchange rate system established at Bretton Woods survived for over twenty-five years, finally disintegrating between 1971 and 1973. While fixed exchange rates provided an environment of comparative stability in which international monetary relations were conducted in the post-war years , the system came under considerable strain at particular periods, no more so than in the United States and the United Kingdom in the later years of the 1960s.

THE FOREIGN·EXCHANGE MARKET Behaviour in the foreign-exchange market depends on the supply of and demand for currencies. Under a system of fixed exchange rates or managed floating in which the monetary authorities wish to preserve the exchange rate at a particular level, a positive total currency flow will increase the level of foreign-currency reserves because the supply of foreign currency to a country will exceed the demand . Conversely a negative total currency flow will lead to a decrease in foreign-currency reserves because the demand for foreign currency exceeds the supply.

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Balance-of-Payments Theory and the United Kingdom Experience by A.P. Thirlwall

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