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From the national educational radio network here is a Business Review ASSOCIATE PROFESSOR ROSS Wilhelm of the University of Michigan Graduate School of Business Administration presents his views in the commons of business and economic activity. The recent run up of gold prices because of the labor troubles in France is another clear sign that the world's monetary system is in need of an overhauling. The fundamental inconsistency in the world's monetary system which has been causing increasing problems in recent years is the attempt to continue to maintain fixed exchange rates in a world where each nation has the freedom to inflate its currency at any rate it wishes. The attempt to maintain fixed exchange rates when nations are inflating their currencies and different rates is simply a contradiction which leads to our periodic monetary crises fixed exchange rates mean that a British pound is worth two dollars and forty cents a franc is worth 20 cents on a good West German mark is worth 25 cents. The fixed exchange
rates for most of the world's currencies Weyrich stablished many years ago when the economic conditions were significantly different from those prevailing today. Because economic conditions have changed since the exchange rates between currencies were established the rates prevailing today no longer reflect the relative purchasing powers of the currencies of the world let me explain. Suppose a number of years ago that you could buy in the United States £10 a chicken for $2 and 40 cents. And suppose that in Great Britain an equivalent amount of chicken would have cost you one British pound assuming the price of chicken was representative of all prices in both the United States and Great Britain. It would have been sensible to have said that a pound was worth two dollars and forty cents at 240 pounds have the same purchasing power as do dollars. Now let's assume that as the years passed the prices of products in Great Britain double our prices remain unchanged. The British Let us assume of experienced inflation while we have not. Now in the United States we should still be able to buy 10 pounds of chicken for $2 and 40 cents. But in Great Britain where prices are assumed to have doubled it would
now require £2 to buy 10 pounds of chickens instead of £1. In other words because the prices have doubled in Great Britain while they did not change here the fixed exchange rate of one pound equals two dollars and 40 cents no longer reflects the true purchasing power of the respective currencies. A pound of Great Britain would now be only worth what. Dollar twenty would buy in the United States in the exchange rate of £1 for 240 would no longer be correct. Now as I've said the exchange rates of the world currencies were established a number of years ago and since they were established some natures of experience much more inflation than of others. Great Britain the United States and France have had much more inflation than has West Germany and as a result the exchange rates between these currencies which are a stablished in the dim past no longer reflect the relative purchasing powers of the currencies. Some currencies such as West Germany. Such as the West German mark are undervalued while the pound the dollar in the franc are overvalued. The incorrect valuation of the world's currencies leads traders banks governments and other groups that
acquire overvalued currencies to attempt to get rid of them as quickly as possible. The easiest way to get rid of a currency is to sell it for gold. And this is why the price of gold rises during a monetary crisis everyone holding the undesirable currency seeks to sell them for gold and thus the demand for gold rises and its price tends to rise along with it. There are a number of ways a nation nations can seek to correct the incorrect exchange rates one way is simply to set a new fixed exchange rate which reflects the current purchasing powers of the currencies of the world. This is called devaluation when entailing changing the existing rates to some more meaningful set of ratios. The difficulty with this approach or any of the many variations of it which exist is that it does not correct the flaw in our system which is that any fixed exchange rate will be incorrect over time if the nations have the freedom to inflate their currencies at different rates. The main alternative to a fixed exchange rate is a is a free floating exchange rate system where the rate is determined by the market just as the prices of stocks or commodities are determined by
Series
Business review
Episode
Fixed exchange rates
Producing Organization
University of Michigan
National Association of Educational Broadcasters
Contributing Organization
University of Maryland (College Park, Maryland)
AAPB ID
cpb-aacip/500-r20rwf03
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Description
In program number 406, Ross Wilhelm talks about fixed exchange rates and their role in the troubled international monetary system.
This series, hosted by Ross Wilhelm, focuses on current news stories that relate to business and economic activity.
Broadcast
1969-03-25
Topics
Business
Media type
Sound
Duration
00:04:58
Embed Code
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Credits
Producing Organization: University of Michigan
Producing Organization: National Association of Educational Broadcasters
Speaker: Wilhelm, Ross, 1920-1983
AAPB Contributor Holdings
University of Maryland
Identifier: 61-35c-406 (National Association of Educational Broadcasters)
Format: 1/4 inch audio tape
Duration: 00:04:46
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Citations
Chicago: “Business review; Fixed exchange rates,” 1969-03-25, University of Maryland, American Archive of Public Broadcasting (GBH and the Library of Congress), Boston, MA and Washington, DC, accessed September 20, 2021, http://americanarchive.org/catalog/cpb-aacip-500-r20rwf03.
MLA: “Business review; Fixed exchange rates.” 1969-03-25. University of Maryland, American Archive of Public Broadcasting (GBH and the Library of Congress), Boston, MA and Washington, DC. Web. September 20, 2021. <http://americanarchive.org/catalog/cpb-aacip-500-r20rwf03>.
APA: Business review; Fixed exchange rates. Boston, MA: University of Maryland, American Archive of Public Broadcasting (GBH and the Library of Congress), Boston, MA and Washington, DC. Retrieved from http://americanarchive.org/catalog/cpb-aacip-500-r20rwf03