Exchange Rate Regimes: Why Gold Standards are not Sustainable

Of late there have been calls for a return to the gold standard for exchange rate determination. Much of these revolve around the nostalgia surrounding fixed exchange rate gold parity systems like Bretton Woods and its prior versions. While it is true that the post-war period from the late 1940s to the early 1970s was indeed a period of strong and stable growth, it would be incorrect to attribute this to the gold standard alone. For just as the Bretton Woods collapsed, at least two previous versions had also collapsed. In each case, the collapse was caused by massive speculative attacks on the reserve currency; the US dollar in the case of Bretton Woods and the Pound Sterling previously. The speculative attacks were themselves the result of seriously misaligned exchange rates. The key...