chapter  2
29 Pages

After Bretton Woods: the world of bloc floating

In the years after 1973, the world economy went through a period of turbulence before it started to restructure in the 1980s. Under the impact of the two oil shocks of 1973 and 1979, volatility of exchange rates increased markedly. This was partly a result of diverging policies in response to shocks and partly due to instability following the development of international financial markets, which outgrew the real economy. In the general climate of uncertainty smaller countries sought to better control their environment by pegging their exchange rate to some larger currency or to a basket. A consequence was the emergence of monetary blocs around regional anchor currencies.