Fixed Exchange Rates

Summary of Fixed Exchange Rates

A condition in which the official rates of exchange for most currencies, particularly those of major trading nations, are in an established ratio to one another; generally, this is the result of each currency having an established rate to gold from which a series of bilateral exchange ratios can be established. Under the Bretton Woods system, all trading currencies had values fixed, or denominated in terms of U.S. dollars; in turn, the dollar had an established value of $35 per ounce of gold. A growing disparity between the official and market prices of gold in dollars, as well as mounting American inflation and balance of payments deficits, resulted in wholesale redemption of dollars for gold during the 1960s. On August 15, 1971, President Richard Nixon halted conversion of dollars for gold; this act marked the demise of the Bretton Woods system, and with it, fixed exchange rates.

(Main Author: William J. Miller)