Abstract
Until 1973, the coordination of policies was institutionalized in the Bretton Woods exchange rate system. The fixed exchange rate system tied all currencies to the dollar, and the dollar to gold. Maintaining the exchange rate implied a balance-of-payments equilibrium, and stable or at least non-diverging developments in factor price. Free trade and the ability to equalize factor prices across national borders was one of the cornerstones of the system and was supported by the exchange rate regime of Bretton Woods. However, in a world made up of diverging economies in terms of structure and level of development, the stability of the exchange rate rested on rigorous stabilization policies of the member states and the flexibility of the system to incorporate changing production and trade patterns.
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van der Linde, C. (2000). International Economic Instability. In: The State and the International Oil Market. Studies in Industrial Organization, vol 23. Springer, Boston, MA. https://doi.org/10.1007/978-1-4615-4575-0_4
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