Tiffany Lawson May 27, 2015 Seminar 2 Case Study: Gold Standard
The United States uses the float system as an exchange rate. When currency values move at a steady or rapid rate in any one direction, banks such as The Federal Reserve will step in and buy and sell their own currency reserves in foreign exchange markets in order to stabilize the local currency. Fixed exchange rates also stabilize the value of currency. The exchange rate will not change based on market conditions. This is a pro for the United States. This makes trades and investments between two currencies easier and more predictable. A fixed rate can also control the behavior of currency and inflation. As the reference values rise or fall, other currencies pegged will rise and fall and its commodities that come with it. There is such a thing as The Hybrid Exchange Rate. This is what I feel the U.S should adopt. This is a fixed exchange rate that may stabilize the economy. The credibility of Central banks could be established more by getting their country’s currency more disciplined. This could be helpful for the many negative comments about the U.S and how spoiled and disabled we are. This may fix exchange rates and provide the residents with a market that provides vehicle currency. The effort to control currency has never been a thought in my mind, but now that I am trying to understand it, it does seem that there needs to be more discipline in exchange with other currencies. America is the heart of the world so the demand to remain stagnant because the float system seems to be working; may not be the right choice.
A fixed exchange rate may minimize instabilities in real economic activity[16]
Central banks can acquire credibility by fixing their country's currency to that of a
