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Reserve needs under flexible exchange rates

  • J. A. H. de Beaufort Wijnholds
Part of the Publication of the Netherlands Institute of Bankers and Stock Brokers book series (PIBS, volume 31)

Abstract

The literature on the need for reserves discussed thus far pertains predominantly to reserve need as experienced under the exchange rate regime prevailing at the time the publications cited were written. For most of the period since the Second World War that regime was the par value system as conceived at Bretton Woods. Under this system exchange rates were allowed to fluctuate around parity only to a quite limited extent,2 whereas parity changes were to take place only in the event of a “fundamental disequilibrium”. During much of this period there was a great reluctance among countries to change their parities, and exchange rate action was often delayed until long after a fundamental disequilibrium had become apparent. Because of the rigidity to which exchange rates were subject in practice, the need for reserves during that period (up to 1967) resembled that which would prevail under a system of truly fixed exchange rates.

Keywords

Exchange Rate Exchange Rate Regime Monetary Authority Foreign Exchange Market Flexible Exchange Rate 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

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References

  1. 1.
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    Greater flexibility as compared to the par value system constructed at Bretton Woods.Google Scholar
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    Originally designated “crawling parities”, such systems have also been referred to as “sliding parities”.Google Scholar
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    According to this proposal presumptive rules are laid down for parity changes, i.e. rules which countries are not obliged to follow, but which they are expected to follow unless strong reasons exist for not doing so. Cooper favours basing presumptive rules on changes in international reserves. In case of reserve movements being influenced by special circumstances the presumption of a parity change could be ignored. If a country were to continuously refuse to adjust its exchange rate in line with changes in its reserves, and in the absence of convincing evidence for abstaining from such adjustments, it would be subject to sanctions. Cf. Richard N. Cooper, “Flexing the International Monetary System: The Case for Gliding Parities” in The International Adjustment Mechanism, Boston, 1970, pp. 146, 147, 150.Google Scholar
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    For an enunciation of his view cf., for instance, Fritz Machlup, The Alignment of Foreign Exchange Rates, New York, 1972, pp. 74–76.Google Scholar
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    Cf. Herbert G. Grubel, The International Monetary System: Efficiency and Practical Alternatives, Penguin Books, Harmondsworth, 1969, 70–80.Google Scholar

Copyright information

© Springer Science+Business Media New York 1977

Authors and Affiliations

  • J. A. H. de Beaufort Wijnholds

There are no affiliations available

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