The quest continued in Europe for currency stability with the 1992 signing of The Maastricht
treaty. This was to not only fix exchange rates but also actually replace many of them with
the Euro in 2002.
Floating Exchanges:- Under a floating exchange system, currencies are not valued in terms of gold they are valued in terms of other currencies.
In the early 20th century, two world wars brought about social upheavals,rapid inflation,
and the destruction of the setting which made the gold standard operable.Between
the wars,many countries elected to temporarily abandon the gold standard and opt for floating
exchange systems until their economies returned to the point at which if a currency
drifted too far outside its band and could not be contained by central bank intervention,
the country was allowed to adjust its peg by setting a new exchange rate. With the
instability brought about by the Vietnam War, central banks finally began to convert their
dollars to gold.To halt the loss of gold, in 1971 Nixon “closed the gold window” by
refusing to provide gold to foreign dollar holders. In 1974 the Bretton Woods System
of adjustable pegs was officially abandoned, and the subsequent Jamaica Agreement
basically allowed the presence of any exchange system a country chose to use.
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