Tuesday, August 11, 2009

exchange rate variations

exchange rate variations among major currencies have been very large since the breakdown of Bretton woods. Fluctuations in nominal exchange rate have also been accompanied by large changes in real exchange rates. Hence,there have been substantial variations in international competitiveness as well as dislocations in the export and import-competing sectors of countries. In addition, the most important variations in relative currency values have occurred with respect to the U.S. dollar, which rose dramatically from 1980to1985 and then fell dramatically after 1985 (especially from 1985 to 1987). As a consequence, in September1985 the PlaZa Agreement was reached in New York by central bankers from France, Japan , the United states, the United Kingdom, and West Germany. In this agreement, the five countries stated that the dollar needed to be lowered in value and that their central banks stood ready to intervene to accomplish this objective. the dollar did indeed fall in subsequent months,and the Louvre Accord was then announced in February 1987. In this accord. the G-7 countries declared that the dollar had fallen far enough (40 percent since 1985). the Dollar was henceforth to be stabilized in a relatively narrow range (but unspecified as to the exact range)by cooperative central bank action.

No comments: