An Eclectic Currency Arrangement

MIDLANDS STATE UNIVERSITY

Faculty of commerce

Department of Banking and Finance

Name Reg number Mode of Entry

MUSORO TINASHE R113723C CDP

CHIRAMBIRA WELLINGTON R115360E CDP

MUTANDADZI VIVIEN R113544W CDP

TSVUURA GAMUCHIRAI B R115030P PDP

MAPFUMO LYNN R111975Z PDP

LECTURER MR MABONGA

LEVEL 4.1

TOPIC :

An eclectic currency arrangements of 1973- present.

According to Daniels, J and Hoose, D (2002) eclectic currency arrangement is also referred to as the floating era or the floating regime. It means employing or selecting individual elements from a variety of sources systems that are necessary and appropriate in managing the economies. The eclectic currency arrangement emerged when global markets have moved toward increasing open exchange of goods and capital, making it increasingly difficult to maintain fixed or even stable rates of exchange between currencies.

The lack of confidence in the fixed exchange regime forced President Richard Nixon to suspend the convertibility of the dollar into gold on the 15th of August 1971. This resulted in subsequent devaluations of the dollar, and most currencies were allowed to float to levels determined by market forces as of March 1973, and since then, exchange rates have become much more volatile and less predictable than they were during the “fixed” period.

In the wake of the collapse of the Britton Wood exchange rate system, the International Monetary Fund (IMF) appointed the committee of twenty which suggested various options for the exchange rate arrangement. These suggestions were approved at Jamaica in Feb 1976 and were formally incorporated into the text of the 2nd amendment to the articles of agreement, which came into force from April 1978, and these options were broadly discussed as the following. The diagram below...