In this work an understanding for fixed exchange rates shall be developed, in order to be able to apply it in relation to flexible ones.
Currency policy is often viewed in connection with monetary policy, and is a complex topic with many different approaches to determine the exchange rate; as it is a relative and not absolute price. In recent years exchange rates have played an increasing part in financial crises.
In 1923 a change in the dominant exchange system - the gold standard - occurred; from this time there were two exchange rate systems – fixed and flexible. Since then there has been an ongoing discussion as to whether fixed exchange rate systems are the better way of reaching countries’ economic goals. A crisis can be also a starting point to think about the pros and cons of the relevant exchange rate system and if it was a cause as well.
This work tries to find an answer to the fundamentals of currency peg from looking at the history to better predict the future, finding some ideas as to what should be considered in determining the exchange rate system.
The subject of this work is the fixed exchange rate system and will focus only on the technical aspect of the exchange rate and not the influences to which politicians are exposed.
The aim of this work is to obtain an overview regarding whether a currency peg is good or bad for a country, through taking a short look on the Mexican crises to find the main trend, namely if a fixed or flexible exchange rate is better.
To answer the question, exchange rate systems will firstly be defined and the different types and countries using it will be described. Then the history, the gold standard, and the mechanism of fixed exchange rate systems and development of crises will be considered. Chapter three will look at the advantages and disadvantages of a currency peg including a brief examination on the Mexican crises as defined by the literature. In the final chapter a conclusion will be reached whether a currency peg is a favourable system.
Inhaltsverzeichnis (Table of Contents)
- Introduction
- Fundamentals of a currency peg
- Fundamentals and definitions of exchange rate systems
- Types of fixed exchange rate systems
- Current countries with a currency peg
- History of fixed exchange rate systems – gold standard
- Fixed exchange rate mechanism and development of crises
- Advantages and disadvantages of a currency peg
- Advantages of a currency peg
- Disadvantages of a currency peg
- Conclusion
Zielsetzung und Themenschwerpunkte (Objectives and Key Themes)
This paper aims to develop an understanding of fixed exchange rate systems, comparing them to flexible systems. It explores the historical context, particularly the shift away from the gold standard, and examines the advantages and disadvantages of currency pegs. The analysis considers the role of exchange rates in financial crises and their connection to monetary policy.
- Fundamentals of currency pegs and various exchange rate systems
- Historical development of exchange rate systems, including the gold standard
- Advantages and disadvantages of fixed exchange rate systems
- The role of exchange rates in financial crises
- The relationship between currency policy and monetary policy
Zusammenfassung der Kapitel (Chapter Summaries)
Introduction: This introductory chapter sets the stage by highlighting the 2015 Swiss franc devaluation as a key example of the complexities and potential volatility inherent in exchange rate systems. It establishes the paper's objective of understanding fixed exchange rates within the broader context of monetary policy and financial crises. The chapter emphasizes the ongoing debate surrounding the efficacy of fixed versus flexible exchange rate systems and positions the paper's contribution as an analysis of the fundamental aspects of currency pegs to improve future predictions about exchange rate system suitability.
Fundamentals of a currency peg: This chapter delves into the core concepts of currency pegs. It provides definitions and classifications of exchange rate systems, offering a typology of fixed exchange rate regimes. It reviews countries currently employing currency pegs and traces the historical evolution of exchange rate systems, notably the gold standard and its subsequent shifts. Finally, it explores the mechanics of fixed exchange rate mechanisms and their association with past financial crises, outlining the complexities and challenges of maintaining these systems.
Advantages and disadvantages of a currency peg: This chapter analyzes the benefits and drawbacks of fixed exchange rate systems. The advantages likely encompass reduced exchange rate volatility, increased price stability, and potentially enhanced trade. Conversely, the disadvantages might include a loss of monetary policy independence, vulnerability to speculative attacks, and potential challenges in responding to economic shocks. A balanced examination of these contrasting aspects provides a comprehensive understanding of the trade-offs involved in choosing a fixed exchange rate regime.
Schlüsselwörter (Keywords)
Currency peg, exchange rate systems, fixed exchange rate, flexible exchange rate, monetary policy, financial crises, gold standard, economic goals, Switzerland, Euro.
Frequently Asked Questions: A Comprehensive Language Preview on Currency Pegs
What is the main topic of this paper?
This paper focuses on fixed exchange rate systems, specifically currency pegs. It explores their fundamentals, historical context (including the gold standard), advantages, disadvantages, and role in financial crises. The paper aims to provide a thorough understanding of currency pegs within the broader framework of monetary policy and exchange rate systems.
What are the key themes covered in the paper?
Key themes include the definition and types of exchange rate systems, the historical development of these systems (with a particular emphasis on the gold standard), a comparison of fixed versus flexible exchange rate systems, the advantages and disadvantages of currency pegs, the connection between exchange rates and financial crises, and the relationship between currency policy and monetary policy.
What are the objectives of this paper?
The paper aims to improve understanding of fixed exchange rate systems by comparing them to flexible systems. It seeks to analyze the historical context of these systems, particularly the shift away from the gold standard. Furthermore, it aims to examine the advantages and disadvantages of currency pegs and their role in financial crises. The ultimate goal is to contribute to better predictions regarding the suitability of different exchange rate systems.
What is included in the table of contents?
The table of contents covers an introduction, a detailed section on the fundamentals of currency pegs (including definitions, types, current examples, the history of fixed exchange rate systems, and the development of crises), a section dedicated to the advantages and disadvantages of currency pegs, and a conclusion.
What specific aspects of currency pegs are discussed in the "Fundamentals" chapter?
This chapter delves into the core concepts of currency pegs, providing definitions and classifications of exchange rate systems. It offers a typology of fixed exchange rate regimes, reviews countries currently using currency pegs, traces the historical evolution of exchange rate systems (especially the gold standard), and explores the mechanics of fixed exchange rate mechanisms and their connection to past financial crises.
What are the advantages and disadvantages of a currency peg, as discussed in the paper?
Advantages likely include reduced exchange rate volatility, increased price stability, and potentially enhanced trade. Disadvantages may include a loss of monetary policy independence, vulnerability to speculative attacks, and challenges in responding to economic shocks. The paper provides a balanced view of these trade-offs.
What is the role of the introduction chapter?
The introduction sets the stage by using the 2015 Swiss franc devaluation as a case study, highlighting the complexities and potential volatility of exchange rate systems. It establishes the paper's objective and emphasizes the ongoing debate on fixed versus flexible exchange rates. It positions the paper's contribution as an analysis of currency pegs to improve future predictions about the suitability of exchange rate systems.
What keywords are associated with this paper?
Keywords include: Currency peg, exchange rate systems, fixed exchange rate, flexible exchange rate, monetary policy, financial crises, gold standard, economic goals, Switzerland, Euro.
What is the overall purpose of the chapter summaries?
The chapter summaries provide concise overviews of the content and key arguments presented in each section of the paper, offering a quick way to understand the main points of each chapter.
- Arbeit zitieren
- Anja Berndt (Autor:in), 2019, Understanding the concept of a currency peg, München, GRIN Verlag, https://www.grin.com/document/980933
