## Currencies Considered — FLOATING EXCHANGE RATES AT FIFTY

## Source details

**Canonical URL:** [Currencies Considered — FLOATING EXCHANGE RATES AT FIFTY](https://www.imf.org/-/media/files/publications/fandd/article/2024/09/books-bayoumi.pdf)

## Other formats

- [Markdown version](/-/media/files/publications/fandd/article/2024/09/books-bayoumi.pdf.md)
- [Structured JSON version](/-/media/files/publications/fandd/article/2024/09/books-bayoumi.pdf.json)

---

### Overview and book composition
- Conference volume comprises 28 succinct essays by top researchers and policymakers on the switch to floating exchange rates in 1973.
- Introduction and editorial leadership: Maury Obstfeld and Doug Irwin.
- Publication details: PIIE Press, Washington, DC, 2024, 384 pp., $25.

### Historical perspective on 1973 and its legacy
- Early views in the volume are diverse:
  - Anne Krueger and Fred Bergsten view floating relatively positively, seeing it as better than alternatives.
  - Robert Aliber views floating as the cause of serial financial instability.
- Common theme: political economy constraints to improvements in the system recur across essays.
- Key observation: the move to floating rates was a leap in the dark; exchange rates did not adjust smoothly but "jumped around" because financial transactions have always dominated those associated with trade (as noted by Hyun Song Shin).
- The demise of fixed dollar parities:
  - Enhanced the role of the dollar, reflecting the unparalleled breadth and depth of US financial markets.
  - Launched the monetary cooperation among European countries that culminated in the euro (as discussed by Philip Lane).
- Expectation versus reality: most expected the floating rate system to be a temporary stopgap, yet it remains.

### Evolution of the post-1973 system
- Gradual emergence in advanced economies of a new system comprising:
  - inflation targeting,
  - free-floating rates,
  - deep and highly integrated capital markets anchored on the dollar.
- Financial integration and dependence on US markets caused major problems during the 2008 North Atlantic financial crisis.
  - The Federal Reserve arranged swap agreements with other major central banks and effectively became the lender of last resort for the advanced world.

### Emerging markets and regional differences
- Emerging markets’ experience is slightly different and significantly rougher:
  - More successful emerging markets have adopted inflation targeting and floating rates.
  - Thinner domestic capital markets and lack of access to swap lines make emerging markets more vulnerable to financial shocks.
  - Continued use of intervention and capital controls in emerging markets is explained by these vulnerabilities.
- Middle Eastern oil producers remain wedded to dollar pegs, reflecting shallow capital markets and geopolitical considerations (as discussed by Adnan Mazarei).

### Future of global reserve currencies
- Relative unanimity among contributors: the dollar will remain the dominant currency for at least the next decade.
- Rationale: neither the euro area nor China offers the financial depth needed to replace the dollar.

### Reviewer assessment and recommendation
- The reviewer describes the book as a "treasure trove of information and insight."
- The diversity of topics, approaches, and conclusions makes the book both informative and intellectually stimulating.
- The reviewer (Tamim Bayoumi) reports learning substantially from the volume and recommends it to readers.

*Tamim Bayoumi, F&D, SEPTEMBER 2024.*

---


_Source: https://www.imf.org/-/media/files/publications/fandd/article/2024/09/books-bayoumi.pdf_