chapter  7
34 Pages

Exchange-rate systems, past to present

ByJoseph P. Daniels, David D. VanHoose

The determination of the international value of a nation's currency is a very important issue. Together with the way in which a nation conducts its macroeconomic policies, an exchange-rate system may promote a stable economic environment that promotes trade and investment, or an unstable environment that puts its industries at a competitive disadvantage. An exchange-rate system is the set of rules governing the value of an individual nation's currency relative to other foreign currencies. An exchange-rate system is the set of rules established by a nation to govern the value of its currency relative to foreign currencies. A gold standard constitutes an exchange-rate system for an adopting nation because it establishes a domestic and international rate of exchange between the domestic currency and gold. In 1914, after the beginning of World War I, many European nations suspended convertibility of their currencies into gold.