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Floating exchange rates

Floating exchange rates - Floating exchange rates our...

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Floating exchange rates : our current monetary regime Announcements/ reminders : Tuesday next week : Monday schedule Since the Bretton Woods regime fell apart : the key thing is that the notion from the fixed to floating exchange rate regime Floating exchange rate regime : Pure float versus dirty float Floating : you are giving up on trying to fix the market , let the market do its thing , this is a pure float. They give up on the parity , does not mean that the government does care about the exchange rate . Drity flow : you say you are floating but you still buy and sell currency, you are no longer promising fixed parity vis a vis other currencies The speculators have no idea what is going on Governments management of the currency without giving away information to the speculators by using the dirty flow The IM did not go away when the Bretton Woods ended : what happened at the end , the US goes off of gold, fixed exchange rates are still negotiated ,they keep trying to make things work until finally they give up. All the members are there and they needs new rules, they get everything together Jamaica Accords 1975: what should be the new rules , the French are coming in and insisting some kind of reserve for currency. Everyone else is saying NO, other countries say it should be dollars , the French say no to that. : they agree on the dirty float , if you fill comfortable to tight you currency to another one, please do so. The Europeans try to keep their currency close to each other. The Jamaica Accord says do whatever you want, all the rules are left to you to determine We can call it a regime, but it is not a strong one, no constraints What should the IMF do now? : it was to help countries with balance of payments adjustments and exchange rate fixing , the two jobs no longer exist in 1975. No need of the IMF because you are free to do what you want with your exchange rate Petrodollar recycling : the US $ is the key currency that everyone wants to use for intl transaction. The OPEC countries rise the price of petrol and ask to be paid in US dollars. Lending the money to buy dollars, the US goes through a cycle . OPEC countries deposit the US $ in Banks, Banks lend it to countries that want to buy oil Eurodollar market blossoms : the US $ market in Europe. US $ in banks outside of
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