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1. The choice of foreign exchange rate regime
One of the most debated issues in international economics concerns the choice of exchange 留学生论文代写rate regime and the ‘pros’ and ‘cons’ of fixed versus flexible or floating exchange rates. In practice neither extreme has ever really existed, but it remains useful to use these ideal types as the basis for drawing some positive and normative conclusions of relevance when choosing a hybrid system. In this sense, the debate over fixed versus flexible exchange rates is analogous to that between perfect competition and monopoly in the economic analysis of market structures. The below illustration depicts the spectrum of exchange rate regimes. It is interesting to note that since the industrial revolution there has been a movement away from fixed towards more flexible exchange rate regimes for the industrialised world. This trend, however, now appears to be in reverse for the membership of the European Union (EU). The European Exchange Rate Mechanism (ERM) of the European Monetary System (EMS), which Britain joined on 8th October 1990, is a distinct shift back to less flexible exchange rates between the participating countries. The proposed continuation along this path to monetary union would entail the disappearance of exchange rates between EU member states altogether as a single currency is adopted for use.

2. Fixed versus floating exchange rates
2.1 THE CASE FOR GREATER FLEXIBILITY
(i) Perhaps the most popular argument in favour of floating exchange rates can be summed up by the expression, ‘the market knows best’. ‘Best’ here implies that a competitive foreign exchange market would be a more efficient means of achieving balance of payments equilibrium and adjustments of the exchange rate over time. However, it may also reflect normative pReferences that market mechanisms are more desirable than leaving decisions to government officials and/or monetary authorities.
(ii) A second argument notes that exchange rates always adjust to ensure continuous equilibrium between the demand and supply of the currency. Thus, an efficient market clearing mechanism quickly eliminates temporary disequilibrium positions, based upon the current account theory discussed in lecture six. Excess demand for a currency leads to its appreciation, thereby making imports cheaper and exports more expensive, and consequently reduces the excess demand for the currency as imports rise and exports fall. Similarly, excess supply of a currency leads to its fall in value, making exports cheaper and imports more expensive, and therefore stimulating demand for the currency through higher exports and lower imports. No one expects the adjustment process to be quite as smooth as this. However, if arbitrage and speculation are stabilising, it provides an efficient and automatic solution to the balance of payments problems.

(iii) Floating exchange rates enable countries to operate independent monetary policies. Floating is, according to this viewpoint, essential to restore monetary autonomy for each country, which would otherwise be constrained by an arbitrary exchange rate target, thereby allowing it to determine its own employment and inflation rates. Under fixed systems, the need to maintain long term competitiveness requires a country to achieve essentially similar inflation rates to other countries, thereby restricting 本论文由英语论文网提供整理，提供论文代写，英语论文代写，代写论文，代写英语论文，代写留学生论文，代写英文论文，留学生论文代写相关核心关键词搜索。