INTRODUCTION

The history of the monetary system, outlined in Chapter 19, is the story of sharp shifts in exchange-rate arrangements. The present system, moreover, spans a wide variety of exchange-rate arrangements.

Recall British monetary history. Great Britain returned to the gold standard in 1925, fixing the value of the pound in terms of gold. It abandoned the gold standard in 1931, letting the pound float. Britain joined the International Monetary Fund in 1945, and the pound was pegged to the dollar, although it was devalued twice, in 1949 and 1967. When the United States closed the gold window in 1971, the pound was allowed to float, but it was pegged a few months later under the Smithsonian Agreement. It was allowed to float again in 1972, however, six months before the final breakdown of the Bretton Woods system, and it continued to float until 1990. At that point, Britain joined the exchange-rate mechanism of the EMS, only to depart during the 1992 crisis.

Under the Articles of Agreement of the IMF, member countries may adopt “exchange arrangements of their choice” but must notify the IMF of any change in those arrangements. Table 20-1 summarizes the arrangements reported by 139 countries that have been members of the IMF since 1982. Note, first, the wide variety of exchange-rate arrangements used in 1997, when 67 countries had pegged rates of one sort or another, 43 countries had floating rates, and 29 countries had intermediate arrangements. Note, next, the large differences among types of countries.