International Macroeconomics

International Macroeconomics

Introduction

The transition from a fixed to a floating exchange rate was gradual. Since the collapse of the Bretton Woods system in the 1970s, the world's major currencies were released to float freely. Initially, most developing countries continued to "tie" their currencies to a key (usually, it was the U.S. dollar or the French franc). By the end of 1970, it was possible to observe a gradual shift to a basket of currencies such as the IMF Special Drawing Rights (SDR). However, from the early 1980s, developing countries began to go to a more flexible exchange rate.

In 1975, ...