Money and exchange rates

Abstract

Eight major industrial countries now establish annual targets for the growth of their monetary aggregates: the U.S., Germany, Japan, Canada, the U. K., France, Italy and Switzerland. In many cases they have done so because of their concern with controlling domestic rates of inflation, in the aftermath of the 1973 breakdown in the system of fixed (or almost fixed) exchange rates. Under the earlier Bretton Woods system, fixed exchange parities required countries with balance-of-payments surpluses to their surpluses; that is, central banks essentially converted the surplus foreign exchange into centralbank assets, thereby expanding that country's domestic money supply.