2 all currencies linked to that price in a fixed rate

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2. All currencies linked to that price in a fixed rate system. 3. Exchange rates allowed to fluctuate by 1% above or below initially set rates. 15
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A BRIEF HISTORY OF THE INTERNATIONAL MONETARY SYSTEM B. Collapse, 1971 1. Causes: a. U.S. high inflation rate b. U.S.$ depreciated sharply. 16
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A BRIEF HISTORY OF THE INTERNATIONAL MONETARY SYSTEM V. Post-Bretton Woods System (1971-Present) A. Smithsonian Agreement, 1971 US$ devalued to 1/38 oz. of gold. By 1973: World on a freely floating exchange rate system. 17
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A BRIEF HISTORY OF THE INTERNATIONAL MONETARY SYSTEM B. OPEC and the Oil Crisis (1973-1974) 1. OPEC raised oil prices four fold; 2. Exchange rate turmoil resulted; 3. Caused OPEC nations to earn large surplus B-O-P. 4. Surpluses recycled to debtor nations which set up debt crisis of 1980’s. 18
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A BRIEF HISTORY OF THE INTERNATIONAL MONETARY SYSTEM C. Dollar Crisis (1977-78) 1. U.S. B-O-P difficulties 2. Result of inconsistent monetary policy in U.S. 3. Dollar value falls as confidence shrinks. 19
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A BRIEF HISTORY OF THE INTERNATIONAL MONETARY SYSTEM D. The Rising Dollar (1980-85) 1. U.S. inflation subsides as the Fed raises interest rates 2. Rising rates attracts global capital to U.S. 3. Result: Dollar value rises. 20
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A BRIEF HISTORY OF THE INTERNATIONAL MONETARY SYSTEM E. The Sinking Dollar (1985-87) 1. Dollar revaluated slowly downward; 2. Plaza Agreement (1985) G-5 agree to depress US$ further. 3. The Louvre Agreement (1987) G-7agree to support the falling US$. 21
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A BRIEF HISTORY OF THE INTERNATIONAL MONETARY SYSTEM F. Recent History (1988-Present) 1. 1988 US$ stabilized 2. Post-1991 Confidence resulted in stronger dollar 3. 1993-1995 Dollar value falls 22
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THE EUROPEAN MONETARY SYSTEM I. INTRODUCTION A. The European Monetary System (EMS) 1. A target-zone method (1979) 2. Close macroeconomic policy coordination required.
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