ABSTRACT
The volatilities of foreign exchange rates in international markets have increased noticeably since the breakdown of the Bretton Woods system in 1973. The Bretton Woods system emerged after the Second World War as an attempt to establish a monetary system that offered a high degree of foreign exchange rate stability without the perceived disadvantage of gold standard. Over time, however, structural weakness ultimately assured its demise. In short, governments tended to resist needed exchange rate adjustments and the dollar’s position as the key international reserve currency was undermined. Moreover, speculative attacks on major currencies became more frequent. The Bretton Woods system of fixed exchange rates finally passed into history in 1973 when the Smithsonian Agreement of 1971 proved insufficient to repair its flaws.
