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The Future of the International Monetary System

Edited by Marc Uzan

Is the international financial architecture debate over? Not according to leading experts gathered together in this impressive volume who try to identify the key trends that will fashion the international financial system in the years ahead. As history has shown, the evolution of the international monetary system is a slow process. However, the authors argue that we may be entering a new era in which a combination of factors will have lasting consequences on the functioning of the international monetary system and the future role of the IMF.
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Chapter 12: The exchange rate regime and monetary arrangements in South Africa

E.J. van der Merwe


E.J. van der Merwe INTRODUCTION The Bretton Woods system of fixed exchange rates served the world well for more than two decades after the Second World War. Under this system, members of the International Monetary Fund were required to address temporary balance of payments disequilibrium by means of macroeconomic policy measures and not by exchange rate changes. Only in the case of ‘fundamental balance of payments disequilibrium’ could countries adjust the par values of their currencies. This system succeeded in providing the world with relative exchange rate stability for a long time. In the 1960s, pressures began to build up sharply against the Bretton Woods system because of the large deficits in the balance of payments of the United States and the reluctance of member states to adjust their exchange rates even when they encountered serious structural balance of payments disequilibrium. As a result, the system of stable exchange rates was finally abandoned at the beginning of 1973. Countries were then forced to restructure their exchange rate regimes and monetary arrangements. This chapter will discuss the changes that were made to South Africa’s exchange rate regime and monetary arrangements after the end of the Bretton Woods system, which finally led to the adoption of an inflation targeting monetary policy framework with a freely floating currency in the year 2000. Although we have only applied this framework for three years, it is also interesting to review how well it has worked over this short period. 238 The exchange rate...

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