Further Essays in Monetary Economics (Collected Works of Harry Johnson)

Chapter 8

The Case for Flexible Exchange Rates, 1969*

I. INTRODUCTION

By ‘flexible exchange rates’ is meant rates of foreign exchange that are determined daily in the markets for foreign exchange by the forces of demand and supply, without restrictions on the extent to which rates can move imposed by governmental policy. Flexible exchange rates are, thus, to be distinguished from the present system, (the International Monetary Fund system) of international monetary organization, under which countries commit themselves to maintain the foreign values of their currencies within a narrow margin of a fixed par value by acting as residual buyers or sellers of currency in the foreign-exchange market, subject to the possibility of effecting a change ...