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Old 04-15-2009, 05:43 PM
SeC SeC is offline
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Join Date: Nov 2005
Posts: 2,251
Smile One World, One Money?


Creation of the euro, among other developments, has increasingly focused attention on the question of fixed exchange rates versus flexible exchange rates. Even in Canada, seminars and conferences have been held exploring the subject. Would a global move toward fixed exchange rates, including currency blocs, be a good idea or not?

Milton Friedman: Discussion of this issue requires replacing the dichotomy fixed or flexible by a trichotomy:

1. hard fixed (e.g., members of Euro, Panama, Argentine currency board);

2. pegged by a national central bank (e.g., Bretton Woods, China currently);

3. flexible (e.g., US, Canada, Britain, Japan, Euro currency union).

By now, there is widespread agreement that a global move to pegged rate regimes would be a bad idea. Every currency crisis has been connected with pegged rates. That was true most recently for the Mexican and East Asian crisis, before that for the 1992 and 1993 common market crises. By contrast, no country with a flexible rate has ever experienced a foreign exchange crisis, though there may well be an internal crisis as in Japan.

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