ABSTRACT
In the decades since World War II, one of the most important debates in international finance has been between those favoring flexible exchange rates and those advocating fixed parities. Bankers and others directly involved in international transactions often had a strong preference for fixed exchange rates, whereas academic economists typically supported floating exchange rates.1 In 1973 many of the major industrialized countries decided to adopt floating rates. This was not a victory of the professors over the men of affairs, but rather it followed the collapse of the previous system and the lack of a feasible alternative. At the time it was thought that floating exchange rates would be replaced by a return to parities within a few months, but the OPEC price shock and other sources of financial turmoil made that return impossible.
