Thursday, February 10, 2005


G8 agenda - the international financial architecture

Research by the UK media into 'Black Wednesday' is providing compelling reasons for rethinking the international financial architecture. Floating or fixed exchange rates?

But returning to fixed exchange rates means that national governments would have to comply with monetary discipline, if they want to take part in the global economy. In the early 1970's, it was agreed that the global system of fixed rates (currencies linked to gold) should scrapped. Thereafter, floating currencies became the practice. However, since then, the European Union have tried to reinstate some control, by introducing broad guidelines for the public finances of their member states (Stability and Growth Pact). Moreover, certain countries are pegging to the dollar. Fixed rates are on the way back - unofficially in some cases.

The banking industry isn't too keen on fixed exchange rates. They mauled the UK taxpayer in 1992. The events surrounding 'Black Wednesday', when the UK Treasury used up $40bn in reserves in the failed attempt to prop up the pound, hobbled progress in moving to the protection for taxpayers of fixed rates.

Floating or fixed?

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