Abstract
What can history tell us about the desirability, and feasibility, of maintaining fixed exchange rates between national currencies when capital is highly mobile? The workings of the international gold standard from the late 1870s to August 1914 provide the best example we have. Unlike the Bretton Woods system of pegged exchange rates in the 1950s and 1960s, or the residual controls of today’s European Monetary System, no exchange controls impeded gross flows of financial capital. Moreover, net transfers of capital between countries were huge: Large net trade surpluses (deficits) opened and closed continually with no adjustments in nominal exchange rates and, by modern standards, with little change in real exchange rates. World trade grew rapidly.
Reprinted from Cato Journal 8 (Fall 1988): 351-73.
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McKinnon, R.I., Dornbusch, R., Keleher, R.E. (1989). An International Gold Standard without Gold. In: Dorn, J.A., Niskanen, W.A. (eds) Dollars Deficits & Trade. Springer, Dordrecht. https://doi.org/10.1007/978-94-017-1288-0_7
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