Instability and Volatility of Foreign Exchange Rates

Abstract

It was World War I that shattered the Victorian-Edwardian dreamworld of continuous progress in a stable world order. No greater symbol of that order existed than the international gold standard of the late nineteenth and early twentieth centuries, with its inherent structure of fixed exchange rates, all overseen by a dominant Bank of England in a dominant Great Britain. Such an order could support the gradualistic impulses of Alfred Marshall in his avid declaration from 1890 onward that “natura non facit saltum.” This exchange rate stability provided the essential anchor for such a view in the face of the numerous financial panics that occurred throughout this period, as well as the deep depressions of the 1870s and 1890s.

“Lo! thy dread Empire, CHAOS! is restor’d; Light dies before thy uncreating word: Thy hand, great Anarch! lets the curtain fall; And Universal Darkness buries AIL” Alexander Pope, 1742 “TheDunciad: Book IV”