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It Has A Bibliography Very extensive research - Floating Exchange Rates The Only Viable Solution Stentor Smith For some the collapse of Mexicos economy proves that floating exchange rates and markets without capital controls are deadly Others find the crash of the European exchange-rate mechanism ERM in 1993 to be proof that targeted rates will always be overturned by the free market Many see the breakup of Bretton Woods as the failure of fixed rates Yet others believe monetary unification in Europe is the only way to achieve economic and political stability Many others hold still different beliefs There are however four main proposals for the management of international currency exchange rates monetary unification fixed rates floating rates maintained within certain reasonable limits of variability and freely floating rates Both fixed exchange rates and rates based on either explicit or unwritten targeting are impossible to maintain especially in an era of free trade Complete monetary unification would be impossible to bring about without extensive integration and unification of international governments and economies a task so vast that it is unlikely ever to be accomplished Thus the only option central banks have is to allow exchange rates to float freely The European Monetary System which virtually collapsed in 1993 was an attempt to fix exchange rates within certain tight bands to coordinate monetary policy between member nations and to have central banks intervene to keep exchange rates within the bands when necessary The reasons for the collapse were myriad but simply put it happened because Germany dealing with financial problems in part arising from its reunification refused to lower its high interest rates This meant other European countries either had to keep their rates equally high and allow themselves to fall into recession as a result or devalue their currency against the mark a move viewed by many as a political embarrassment The possibility of a devaluation caused speculators to bolt from the
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