The Merits of Flexible Exchange Rates

This anthology of significant writings by eminent economists is, in part, a critique of the Bretton Woods system of fixed exchange rates, which was very successful at the time it was instituted but which, because of its rigidity, failed in the end to address the economic problems of the post-war era. The writings collected here present a common view: market forces will overpower any attempt on the part of financial managers to control currency values. The stock market crash of October 19, 1987, is a case in point. The authors suggest that it may not have occurred if market forces had been allowed simply to run their course in the absence of any real economic restrictions. As Mr. Melamed writes, "Tinkering with free market forces in a significant way creates unnatural economic conditions that may beget unnatural economic consequences."

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