Birth of the Euro

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The quest continued in Europe for currency stability with the 1992 signing of The Maastricht

treaty. This was to not only fix exchange rates but also actually replace many of them with

the Euro in 2002.

Floating Exchanges:- Under a floating exchange system, currencies are not valued in terms of gold they are valued in terms of other currencies.

In the early 20th century, two world wars brought about social upheavals,rapid inflation,

and the destruction of the setting which made the gold standard operable.Between

the wars,many countries elected to temporarily abandon the gold standard and opt for floating

exchange systems until their economies returned to the point at which if a currency

drifted too far outside its band and could not be contained by central bank intervention,

the country was allowed to adjust its peg by setting a new exchange rate. With the

instability brought about by the Vietnam War, central banks finally began to convert their

dollars to gold.To halt the loss of gold, in 1971 Nixon “closed the gold window” by

refusing to provide gold to foreign dollar holders. In 1974 the Bretton Woods System

of adjustable pegs was officially abandoned, and the subsequent Jamaica Agreement

basically allowed the presence of any exchange system a country chose to use.

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