Exchange-Rate Systems

Chapter 3 Summary
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Chapter 3 Summary
Chapter 3 explores a fundamental concept of currencies’ value in nations through exchange-rate systems. It starts by establishing a background of how these systems operate by describing critical terms such as the monetary order that illustrate the existence of regulations and laws influencing transactions (“Chapter 3,” n.d.). This understanding leads to a rise of rules determining a globally acceptable value of a nation’s currency.
The chapter indicates that the gold standard marks one of the widely accepted mechanisms of an exchange rate system. Nations adhered to a set framework of fixing a gold price based on its currency through the mint parity doctrine leading to convertibility (“Chapter 3,” n.d.). Elhussein and Osman (2019) acknowledge that the presence of this structural organization significantly influences how countries trade with each other. Although nations have migrated from this approach that had started in the 1870s, it continues to receive praise for its stability, with some advocating for its reinvention in modern times. They associate it with diverse benefits, including long-run stability.
The collapse of the system rose from international conflicts and disagreements, leading to the introduction of other options, such as the Bretton woods systems that gave birth to IMF and other international ban...