I've got so much additional reading and research done that I think would be really valuable for you all, so I'm going to start breaking it down into pieces that can help you make smarter decisions when investing, traveling, planning for your future, and just generally understanding all the mumbo jumbo in the business papers.
So let's start with the last century, eh?
A brief history of global currency trade in the last 100+ years
The Gold Standard
Gold has long been a perceived source of value. Precious metals, bartering, and other agreements work well in systems with little outside trade. However, the increase of global trade necessitated a more formal system. The Gold Standard provided a simple solution to this. Each country would set the level that their currency could be converted into a weight of gold. This allowed more fluid movement of currency for trade due to each country buying and selling the appropriate amount of gold in reserve to back their currency. This system lasted from 1876 to 1913.
WWI to WWII
This simple system was interrupted by World War I which greatly restricted the movement of both commodity and currency trade. Trading countries tried to work on a modified gold standard in its stead, however the exchange rates tended to fluctuate more widely. This caused many people to start currency speculating. As the US currency started to devalue, they tried to adopt a stricter modified gold standard. While the USD was still convertible after World War II, many currencies were not.
Post WWII to Nixon
This led to the Allied Powers to meet at Bretton Woods in 1944. On the agenda was how to create an international system for currency and trade as well as how to rebuild after the devastation of the World Wars. The result was the creation of the International Monetary Fund, aiding countries with balance of payments and exchange rate problems, and the World Bank, which drove reconstruction and economic development. All member countries would fix their currencies in terms of gold, but were not required to fully back it with reserves. Some fluctuation was allowed, but large fluctuations would need to be made formally.
After WWII, global economies shifted greatly in levels of recovery, with many growing rapidly. As countries quickly grew and fell in power, so did their currencies, causing the Bretton Woods system to prove ineffective. With the US continually running at a deficit in the balance of payments, confidence in the US dollar fell. In 1971, President Nixon suspended the purchase or sale of gold. After a second devaluation in 1973, it was clear that a fixed-rate system would also not work.
Floating Currency Exchange
Starting in 1973, currencies were allowed to float in relation to each other. This caused wide fluctuations in value between currencies, largely affected by current political and ecological events. Currently, there are a number of systems at work within the world, with many countries at least partially "floating" their currency in relation to the market.
Present
Well, that's the questions isn't it? Some countries are freely floating currencies, some are partly floating/partly managed, and some are still pegged in some way. So what do you call it? Can we try the Funky Chicken?
Hear me out. It's like at a wedding when this stupid song comes on. Half our relatives will trudge onto the floor because everyone else is and they don't want to be the party pooper, so they manage to funk their way through it with varying levels of enthusiasm. However, there's always to opposite ends: the insane cousins, drunk uncles, and uninvited exes. These are the ones that refuse to set foot on the floor and the ones who OWN the floor. That's what it's like now.
Funky Chicken. I called it.
So what do you think?
Have any strong ideas on which system was best? What do you think about where we're headed now? Let me know if the comments below.
No comments:
Post a Comment