Floating Exchange Rates: The Only Viable Solution

Part I of Essay
For some, the collapse of Mexico's economy proves that floating exchange rates and markets without capital controls are deadly. Others find the crash of the European exchange-rate mechanism (ERM) in 1993 to be proof that targeted rates will always be overturned by the free ....

Part II of Essay
.... it is unlikely ever to be accomplished. Thus, the only option central banks have is to allow exchange rates to float freely. The European Monetary System, which virtually collapsed in 1993, was an attempt to fix exchange rates within certain tight bands, to coordinate monetary policy between member nations and to have central banks intervene to keep exchange rates within the bands when necessary. The reasons for the collapse were myriad, but, simply put, it happened because Germany, dealing with financial problems in part arising from its r ....