Floating Exchange Rates: The Only Viable Solution

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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 lira, the
pound, the franc and other currencies, sending the markets into chaos and
destroying all semblance of stability. In the end, the ERM was adjusted to allow
currencies to fluctuate within 15 percent on either side of ...

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is its cost?) and politically disastrous (more people
notice high interest rates and unemployment than care about currency stability).
Even if the government were willing to bow to international standards,
nationalism is strong in the world today and most people do not look fondly upon
consolidated global power--witness the problems of the United Nations. People
would not widely support what would effectively be international control of
their country's economic policies and money supply.

Speculators, unfortunately, know that governments today are likely to put their
self-interest ahead of the nebulous common good and to eventually choose the
monetary policy that is best for their ...

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