Exchange Rate Systems

With reference to real world examples assess the pros and cons of different exchange rate systems. In your answer you should refer to:

· Floating exchange rate regimes – you should in particular consider whether floating currencies are condusive to promoting international trade.

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· Pegged exchange rate regimes and pegged with bands exchange rate regimes – you should consider the possibility of currency crises in relation to the pegged with bands currency regimes and should consider an actual currency crisis such as the 1992 Black Wednesday Crisis for the pound and its membership of the ERM.

· Single currencies – in relation to single currencies you should consider the pros and cons of the Euro, you should bring in the Optimal Currency Area argument, and you should in particular consider whether a nation like Greece in the aftermath of the 2008 Financial Crisis suffered more than it would have if it had not been a part of the Eurozone (due to its inability to devalue its currency or implement a looser monetary policy) and you should also consider whether the ECB has reponsed adequately to the economic challenges of the current coronavirus crisis (i.e. should the ECB be implementing a looser monetary policy in particular right now). You should consider whether a one size monetary policy does fit all.


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