Macroeconomic Policy with Floating Exchange Rates

Abstract

The Bretton Woods system, under which currencies were pegged against the US dollar, and so effectively against gold, started to disintegrate in 1967 (see Chapter 31 for a more detailed discussion). The developed market economies, led by the United Kingdom and followed soon afterwards by Switzerland and then Japan, began to adopt floating exchange rates in the early 1970s. Although such regimes were not ‘legitimised’ by amendments to the IMF Articles until 1978, most developed countries have operated a floating exchange-rate system since the mid-1970s.