Текст 14 a Managed Float

Thus far we have been discussing freely floating exchange rates. Under a free float there is no central bank intervention in the foreign exchange market. The foreign exchange reserves remain constant, the balance of payments is exactly zero, and the net monetary inflow from abroad is also zero.

In practice, exchange rates have rarely been allowed to float absolute freely during the period since 1973 when the Bretton Woods system of the adjustable peg was replaced by a floating exchange rate regime. In the short run, central banks intervene in the foreign exchange market both in an attempt to smooth out fluctuations in the exchange rate and, sometimes, in an effort to nudge the exchange rate in the direction in which the government would like to see it change.

Such intervention may help smooth out day-to-day exchange rate fluctuations, but in the long run it probably makes little difference to the path the exchange rate follows. Central banks have large stocks of foreign exchange reserves, which they could dump, on the foreign exchange market in an effort to alter the equilibrium exchange rate. But the speculators probably have even larger funds at their disposal. One argument for coordinating the central bank intervention in different countries is that, together, the central banks might then have sufficient funds to take on the speculators. Playing the foreign exchanges is not unlike playing poker: if all players are equally good, the player with the most money is very likely to win.

Текст 15 The European Monetary System

In March 1979 the members of the European Community (including the UK) founded and joined the European Monetary System (EMS). The most important features of the agreement were as follows.

First, the European Currency Unit (ECU) would be used as a unit of account for certain transactions between governments of the member countries. Table 33-2 shows the shares of the different member currencies in this currency bundle.

Second, member governments would each deposit 20 per cent of their foreign exchange reserves with the European Monetary Cooperation Fund, and receive ECUs in exchange. These funds were to be available for conceited short-term central bank intervention in foreign exchange markets.

It was only the third and most important provision, the Exchange Rate Mechanism (ERM), in which the UK did not initially participate. Under the ERM, each country fixes a nominal exchange rate against each other ERM participant, though collectively the group floats against the rest of the world. Each country participating in the ERM can allow its exchange rate to fluctuate within a band of ± 2,25 percent of the parities it has agreed to defend. Italy, an especially high-inflation country in 1979, was allowed a band of ± 6 percent. By the mid-1980s, it was a matter of honor for Italy not to use this wider band. Spain also joined with a wider band.

When the currency hits the edge of a band, all central banks in the ERM countries are obliged to intervene to try to defend the parity.