Economics Dictionary of ArgumentsHome
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| Exchange rate policy: Exchange rate policy refers to how a country manages its currency in relation to others. It can adopt a fixed, floating, or pegged exchange rate system. The policy influences trade, inflation, and economic stability by affecting the value of a nation’s currency in global markets. See also Exchange rates, Currency, Currency policy._____________Annotation: The above characterizations of concepts are neither definitions nor exhausting presentations of problems related to them. Instead, they are intended to give a short introduction to the contributions below. – Lexicon of Arguments. | |||
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Milton Friedman on Exchange Rate Policy - Dictionary of Arguments
Landsburg I 70 Exchange rate policy/Friedman/Landsburg: Fixed exchange rates: Prior to 1971, much of the world operated on a system of fixed exchange rates. A United States dollar could be bought (or sold) for 360 Japanese yen, or 4.3 73 Swiss francs, or 26 Austrian schillings, or 1.23 grams of gold. Under a system of international agreements, monetary authorities around the world agreed to maintain these exchange rates by adjusting their money supplies ifnecessary. If, say, the yen appeared to be rising in value, then the Japanese authorities increased the supply ofyen to counteract the rise. If traders started offering less than 1.23 grams of gold for a dollar, the US authorities reduced the supply of dollars to restore their value. FriedmanVsFixed exchange rates: Beginning in 1950, Milton Friedman(1) was a vocal critic of this system, arguing (among other things) that, like any attempt to control prices, it was inimical to freedom, it burdened the monetary authorities with obligations that prevented them from doing their jobs properly, and it was in any event doomed to fail as domestic pressures frequently prevented the authorities from fulfilling their nominal obligations. Those periodic failures were a significant source of just the kind of uncertainty and instability that the system was supposed to prevent. Flexible exchange rates: For decades, Friedman was the intellectual leader of a (very) small band of advocates for flexible exchange rates, and produced a series of memoranda detailing exactly how such a system could be made to work. These memoranda proved invaluable in 1971 when the United States announced that it would, for the first time, allow the US dollar to float freely with respect to gold, and the entire system of international agreements came tumbling down overnight. A new system of flexible rates was smoothly ushered into place, largely following the guidelines that Friedman had developed. Had those guidelines not been available, the world might have moved in the opposite direction, toward more extensive and unwieldy capital and exchange controls, likely necessitating new and oppressive restrictions on international trade. >Exchange rates. 1. Regarding exchange rates: Friedman first broached the issue in an essay entitled “The Case for Flexible Exchange Rates,” written and circulated in 1950 but published in 1953 as a chapter in Friedman’s book Essays in Positive Economics from the University of Chicago Press._____________Explanation of symbols: Roman numerals indicate the source, arabic numerals indicate the page number. The corresponding books are indicated on the right hand side. ((s)…): Comment by the sender of the contribution. Translations: Dictionary of Arguments The note [Concept/Author], [Author1]Vs[Author2] or [Author]Vs[term] resp. "problem:"/"solution:", "old:"/"new:" and "thesis:" is an addition from the Dictionary of Arguments. If a German edition is specified, the page numbers refer to this edition. |
Econ Fried I Milton Friedman The role of monetary policy 1968 Landsburg I Steven E. Landsburg The Essential Milton Friedman Vancouver: Fraser Institute 2019 |
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