ABSTRACT
The naive expectation that a floating exchange rate system would provide an automatic trade adjustment mechanism gave way to dismay during the 1980s as the world witnessed large swings in exchange rates, which were inexplicable by macroeconomic fundamentals, accompanied by huge and persistent trade imbalances among developed economies. Mainstream economists and policy-makers have come to the view that exchange rates need to be managed. The Plaza Agreement of 1985, the Louvre Accord of 1987 and routine G7 statements on the joint commitment to stabilize exchange rates indicate that a continuous process of international monetary reform has now been institutionalized. Within Europe, regional integration is likely to accelerate as arrangements under the EMS are extended and intensified.
