An eclectic currency arrangement, 1973-present

Since March 1973, exchange rates have become much more volatile and less predictable than they were during the “fixed” exchange rate period, when changes occurred infrequently.Exhibit 9.2 illustrates the wide swings exhibited by the IMF’s nominal exchange rate index of the US dollar since 1957.Clearly, volatility has increased for this currency measure since 1973.

The most important shocks that have affected currency values in recent years have been the European Monetary System (EMS)restructuring in 1992 and 1993; the emerging market currency crises, including that of Mexico in 1994, Thailand (and a number of other Asian currencies)in 1997, Russia in 1998, and Brazil in 1999; the introduction of the euro in 1999; the economic crisis in Turkey in 2001, and the currency crises and changes in Argentina and Venezuela in 2002.

Figure 9.2　The IMF’s nominal exchange rate index of the US dollar and significant events, 1957-2007